Collecting Money from the Middle Class
In recent years, a significant concern has emerged regarding the growing disparity between the wealthy and the middle class, and most people don’t even understand what this means.
For example, during the pandemic, Income inequality worsened in the pandemic. The average income of Californians in the top 1% rose from $2.3 million to $3.6 million between 2019 and 2021, while it declined for middle-income Californians, from $46,600 to $46,400. As a result, the top 1% had 78 times the income of middle-income Californians, on average, in 2021, up from 49 times the income just two years earlier. In fact, the average Californian in the top 1% earned in just five days what the average middle-income Californian earned in a year. — California Policy and Budget Center
This concern, which should concern those who aren’t wealthy, revolves around the mechanisms that siphon wealth from the middle class, effectively trapping them in a cycle of dependence on jobs that offer little to no opportunity for relief or upward mobility (the proverbial hamster wheel, or living paycheck to paycheck).
Let’s explore how systemic structures and policies contribute to this wealth gap and its impact on the middle class.
Wealth Siphoning: Understanding the Mechanism
The concept of wealth siphoning refers to the process by which the economic policies and structures in place disproportionately benefit the wealthy, often at the expense of the middle class. This process is not overt; society weaves this into the fabric of our economic and social systems. Key factors include wage stagnation, tax policies, inflation, and the rising cost of living.
A primary factor in wealth siphoning is wage stagnation, and over the past few decades, middle-class workers’ wages have remained relatively flat, adjusting for inflation. According to the Pew Research Center, middle-class incomes have risen by 50%, and low-class incomes have increased by 45% from 1970 to 2021. In contrast, the income and wealth of the top percentile have soared, rising 69% in the same time frame, allowing the upper class to hold 50% of all wealth in 2021, as opposed to only 29% in 1970. - (PEW RESEARCH CENTER) This disparity is not a coincidence but a result of policies and market practices that favor capital over labor, allowing the wealthy to accumulate wealth while middle-class incomes stagnate.
These numbers sound good until you realize that inflation has almost matched wage increase numbers in the past two years alone. In 2021 and 2022, inflation rose 13%, marking two of the highest years since the Great Depression in the late 1910s and early 1920s.
Tax Policies Favoring the Wealthy
Tax policies are crucial in wealth distribution and maintenance, as taxes are unavoidable to most people. A news report published in ABC News had this to say,
“The ProPublica article reported that the ultra-wealthy were able to avoid paying income taxes, despite their net worths increasing dramatically, via legal accounting maneuvers. While the median American household paid 14% of their income in federal taxes, according to ProPublica, the wealthiest 25 Americans had a “true tax rate” that on average came out to 3.4% of the amount their wealth grew each year between 2014 and 2018.” - ABC NEWS
While not illegal, the upper class regularly exploits loopholes that render their tax payments negligible at worst and sometimes nonexistent. In contrast, the middle class pays around 14% of taxes while owning significantly less than the rich in stocks, real estate, and investments. The middle class primarily earns through wages, which the government taxes at a proportional rate, along with fewer tax loopholes that allow the average person to conduct write-offs and tax deferments.
Inflation and Cost of Living
Another way to look at inflation is through evaluating the cost of living. We’ve all met excessively high prices for everyday items in some form, especially immediately after the pandemic. While groceries, gas, and streaming accounts continually rise, the rich have the money to pay without much impact on their daily lives.
“By most measures, low-income households have been hardest hit, experts say. The lowest-paid workers spend more of their income on necessities such as food, rent and gas, categories that also experienced higher-than-average inflation spikes.
By other measures, Americans in the middle class are getting especially squeezed.
For them, prices increased faster than their income, according to a report by the Congressional Budget Office, while households in the lowest and highest income groups saw their income grow faster than prices over the same time period.
Even though middle-class wage growth is high by historical standards, it isn’t keeping up with the increased cost of living, which in April was up 4.9% from the prior year — making it harder to live the same lifestyle previous middle-class generations did.” - CNBC
As the cost of living increases, middle-class and lower-class families find their purchasing power diminishing. Essential expenses such as healthcare, education, and housing have outpaced general inflation, burdening middle-class budgets. The wealthy, however, are often insulated from these effects, as their wealth is not solely reliant on wages and is often diversified in assets that appreciate over time, denoting the abundance of wealth they have to invest in the first place. Middle and low-income households spend a disproportionate amount of their income on necessities, leaving little expendable money to attempt to grow.
The Role of Debt
Debt is another tool in the wealth-siphoning mechanism. Middle-class families often rely on debt to bridge the gap between stagnant wages and rising costs. This reliance on credit cards, student loans, and mortgages means that a significant portion of their income goes toward servicing debt. High-interest rates ensure that most payments go towards interest rather than principal. As of 2024, the average federal student loan debt for borrowers in the United States is approximately $37,090 (Bestcolleges.com). This figure represents a significant financial burden for many individuals who have pursued a bachelor’s degree, highlighting the challenges associated with financing higher education in the current economic climate. It’s important to note that this average encompasses a wide range of debt levels, affected by factors such as the type of institution attended, the duration of study, and the specific degree program. The collective federal student loan debt shared by about 43 million Americans stands at $1.6 trillion, triple what it was in 2007 (Bestcolleges.com). This substantial figure underscores the widespread nature of student debt and its potential impact on graduates’ financial stability and future opportunities. Plainly put, people are paying large sums of money for higher education only to graduate and not land jobs in their field of study, forcing them to take lesser jobs with enormous debt looming.
What does all this mean?
Addressing the issue of wealth siphoning requires a multi-faceted approach involving policy changes, starting with our voices. The crucial steps include progressive tax reforms, stronger labor protections, affordable healthcare, and education policies.
In other words, who you vote for matters, and the economic policies they champion could help or harm your climb towards a comfortable, stable life that does not include living paycheck to paycheck.
Additionally, specific policies aimed at curbing inflation and controlling the cost of living, particularly in housing and essential services, would benefit the middle class. The wealth-siphoning mechanism is a complex and multi-dimensional issue at the heart of the growing economic inequality in modern societies. While society traps the middle class in a cycle of job dependence with limited upward mobility, the wealthy accumulate more resources. Breaking this cycle requires concerted efforts from policymakers, societal stakeholders, and the public to ensure a more equitable distribution of wealth and opportunities. Through such comprehensive measures, we can only restore the balance and secure a sustainable economic future for the middle class.
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