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How the middle class has fragmented under Obama

Rick Newman
Senior Columnist

When President Obama delivered his first State of the Union address in 2009, 53% of Americans considered themselves middle class. Six years later, just 44% of Americans define themselves that way.

It’s no secret working Americans have been under duress for more than a decade, as wages stagnate, computers and robots displace human workers and wealth becomes concentrated among an alarmingly small portion of the population. Obama has promoted policies meant to help the middle class throughout his six years in office, yet the problem today is quite different than when he started the job in 2009—and it’s not clear Obama fully grasps the change.

The president's latest proposal to aid the middle class is a “Robin Hood” tax plan that would hike taxes on the wealthy to finance tax cuts for lower earners. Transferring money from the rich to the working class through the tax code has been a recurring theme of Obama’s (and many Democrats’) tax proposals. And his latest plan seems no more likely to pass a Republican-controlled Congress than many other ideas that have starred in a State of the Union address, then quietly retired.

The middle class itself, however, has changed notably during the relatively short time Obama has been in office, as the chart below shows. The portion of Americans who consider themselves middle class has dropped (as has the portion considering themselves upper class), while the ranks who call themselves lower class have swelled.

Percentage of adults self-identifying as each social class:

Source: Pew Research Center

Americans are less optimistic than they used to be, with the Harris “alienation index ”—which measures satisfaction with five different elements of public life—at the worst level in the poll’s 39-year history. The government’s approval ratings remain close to record lows, and a startling majority of Americans still feel the nation is headed in the wrong direction.

What’s striking about the sour mood is that it has persisted throughout an economic recovery that’s now in its sixth year, with 2014 being an especially strong year for job growth. Obama has correctly identified many economic factors that dog working families—such as flat pay, a shortage of digital-era skills, and the high cost of child care, college and healthcare—but there’s something else going on that Obama’s various proposals for the middle class don’t capture: Too many Americans seem to be losing hope in a bright economic future.

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There's no set definition of "middle class." It might consist of families between the 25th and 75th income percentiles, or between the 20th and 80th income percentiles, which would roughly equate with household income ranging from $25,000 to $105,000. But there are many subjective factors that contribute to a middle-class lifestyle and aren’t easily measured. Many people with incomes in the top 10% of earners, for instance, consider themselves middle class, because they work for their income instead of living off investments and come from modest circumstances.

A 2010 report commissioned by Obama himself declared that “middle-class families are defined by their aspirations more than their income.” And it’s those aspirations that may be the most threatened element of a middle-class lifestyle today.

The 2010 White House report identified six principal things middle-class families aspire to. Examining them one by one helps explain why Americans are down on their prospects. Here are the six essentials of middle-class living:

Owning a home. The homeownership rate has historically been around 64%, but it peaked at 69% during the housing boom and drifted back to about 67% by the time Obama took office in 2009. It has since fallen further, to around 64%. That’s OK from a historical perspective, but because it’s been going down, not up, a lot of former homeowners feel terribly displaced, while many other potential buyers can’t qualify for a mortgage. Renters have more mobility than homeowners, which is a good thing these days, but ownership is clearly more difficult than it used to be for most people.

Owning a car. Auto sales have been strong, suggesting this important element of middle-class living remains intact.

College education for the kids. Big problem. A college degree is more important than ever, yet the cost of college has been rising by nearly three times the rate of inflation since 2009. No wonder the amount of student debt has soared by 58% during that time, to a staggering $1.3 trillion.

Health security. The scorecard is mixed. The Affordable Care Act has helped several million people who didn’t previously have health insurance get it. At the same time, deductibles and out-of-pocket costs have shot up during the last several years, adding to the healthcare burden for many middle-class people who otherwise have stable coverage.

Retirement security. The twin stock-market and housing busts that greeted Obama in 2009 trashed retirement planning for millions. That has improved somewhat during the last several years, yet more than half of retirement-age households face serious financial risk. That’s up sharply from pre-recession levels -- and a potential crisis in the making.

Occasional family vacations. Americans take less vacation now than at any time on record. Some employees suffer from a “work martyr complex,” according to one study, leading them to take less time off than their employers allow. Many lower-income workers, meanwhile, don’t get any paid time off at all. If we’re a prosperous nation, it’s not evident in the way we spend our free time.

Of those six middle-class aspirations, four are further out of reach than when Obama took office in 2009. Two others are arguably the same or a bit better: Healthcare is more attainable for some, and a combination of low interest rates and permissive lending have kept America’s driveways filled with fresh autos.

Most of Obama’s proposals for strengthening the middle class are fairly mainstream ideas backed by reputable economists. What’s harder to assess is whether Obama’s style of leadership inspires middle-class ambition and the spirit of self-improvement long associated with it. The declining portion of Americans who consider themselves to be the backbone of the U.S. economy suggests—not really.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.