An ‘average’ American income may no longer cut it
Daniel de Visé
Wed, June 21, 2023
An average American income isn’t enough for a comfortable living in 2023, according to two recent reports.
The two releases point to the same conclusion: Many Americans earn too little in 2023 to attain a decent standard of living in their communities.
American households are feeling the pinch after three years of relentless economic headwinds.
Inflation, a negligible factor in recent years, surged to 5 percent in 2021 and 8 percent in 2022. It stands now at 6 percent, according to federal data for the first quarters of 2022 and 2023.
Rising prices prompted an unprecedented run of interest-rate hikes by the Federal Reserve, lifting the benchmark federal funds rate from effectively zero to around 5 percent in little over a year.
All of this came amid the COVID-19 pandemic, which pushed the nation’s jobless rate close to 15 percent at the height of the national lockdown in 2020.
“We’re just coming out of this really unusual time when we had pandemic scarcity, we had loss of work. And I think it’s sort of distorted perceptions about the cost of living,” said Peter C. Earle, an economist at the American Institute for Economic Research. “Lockdowns were a sort of existential experience for a lot of people.”
The Gallup poll, taken in April, found that 30 percent of Americans believe a family needs a six-figure income to “get by in your community.” Only 14 percent of respondents said a household could make do on less than $50,000, and even that threshold is $20,000 higher than the federal poverty line for a family of four, $30,000.
“I think the real crux of this issue is, what does it mean to quote-unquote get by?” said Douglas Holtz-Eakin, an economist and president of the American Action Forum, a conservative think tank.
“There’s lots of other data that says that people whose incomes are relatively high are living paycheck-to-paycheck,” Holtz-Eakin said.
A lot has changed in a decade. In 2023 America, the average family might reasonably expect the price of groceries and gas to climb by 5 percent or 10 percent per year into perpetuity. The average homeowner might assume mortgage rates will remain in the 5-percent to 7-percent range for the foreseeable future, after a decade of historically low rates.
Therefore, American families would have good reason, economists say, to dial up their expectations for what it takes to live comfortably.
That report, derived from MIT’s Living Wage Calculator, assumes the average family will allocate half of its after-tax income to basic living expenses, 30 percent to discretionary spending and 20 percent to savings and debts.
By that formula, a resident would need to clear $84,000 a year to live comfortably in San Francisco, $78,500 in New York and $76,000 in Washington, D.C., the study found.
One key factor in rising living costs is spiraling housing expenses. Monthly rents have outpaced inflation. Last spring, the median monthly asking rent surpassed $2,000 for the first time, according to Redfin.
Housing prices, meanwhile, surged by more than 40 percent in two years, from an average of $383,000 in early 2020 to $553,000 in late 2022, according to federal data. The figure slipped to $516,500 this year, as higher mortgage rates sapped purchasing power.
Cars, too, are becoming luxury purchases. The average price for a new vehicle hit $49,500 at the end of 2022, up from $38,948 three years earlier, according to the Kelley Blue Book.
Vehicle prices rose partly because of supply-chain kinks and pandemic shutdowns. Another factor was the demanding American consumer. Buyers pushed up prices by consistently choosing more expensive SUVs and tricked-out trucks over value-priced sedans.
“There’s a lot of debate about how much our expectations are feeding inflation,” said Lisa Gennetian, an applied economist at Duke University.
Homebuyers are seeking ever-larger homes. The average new home grew by 1,000 square feet between the mid-1970s and mid-2010s, according to an analysis by the American Enterprise Institute.
The same principle applies in other areas of family life, Gennetian said. An affluent household might consider private school part of a basic annual budget, while a less wealthy household might struggle to fulfill the fall supply list at public school.
“For some people, private tutoring for my kids, that could be part of my standard of living,” Gennetian said. “Other people, they might be thinking about having a running car.”
Daniel de Visé
Wed, June 21, 2023
An average American income isn’t enough for a comfortable living in 2023, according to two recent reports.
The typical U.S. family earns about $71,000 per year, according to the Census. Yet, the average American believes a family needs at least $85,000 in annual household income to get by, according to a recent Gallup poll.
That finding tracks with a recent study from SmartAsset, a financial technology company, which found the average American worker needs $68,499 in after-tax income to live comfortably. (That works out to around $85,000 in total income, assuming a 20-percent tax hit.)
The two releases point to the same conclusion: Many Americans earn too little in 2023 to attain a decent standard of living in their communities.
American households are feeling the pinch after three years of relentless economic headwinds.
Inflation, a negligible factor in recent years, surged to 5 percent in 2021 and 8 percent in 2022. It stands now at 6 percent, according to federal data for the first quarters of 2022 and 2023.
Rising prices prompted an unprecedented run of interest-rate hikes by the Federal Reserve, lifting the benchmark federal funds rate from effectively zero to around 5 percent in little over a year.
All of this came amid the COVID-19 pandemic, which pushed the nation’s jobless rate close to 15 percent at the height of the national lockdown in 2020.
“We’re just coming out of this really unusual time when we had pandemic scarcity, we had loss of work. And I think it’s sort of distorted perceptions about the cost of living,” said Peter C. Earle, an economist at the American Institute for Economic Research. “Lockdowns were a sort of existential experience for a lot of people.”
The Gallup poll, taken in April, found that 30 percent of Americans believe a family needs a six-figure income to “get by in your community.” Only 14 percent of respondents said a household could make do on less than $50,000, and even that threshold is $20,000 higher than the federal poverty line for a family of four, $30,000.
“I think the real crux of this issue is, what does it mean to quote-unquote get by?” said Douglas Holtz-Eakin, an economist and president of the American Action Forum, a conservative think tank.
Lower-income families, earning less than $40,000 per year, told Gallup pollsters a household needs $66,310 a year to get by, on average. Upper-income households, earning $100,000 or more, said nothing short of $100,000 would suffice.
“There’s lots of other data that says that people whose incomes are relatively high are living paycheck-to-paycheck,” Holtz-Eakin said.
Ten years ago, in an earlier Gallup poll, the average American believed a household could get by on $58,000 a year. That number exceeded the median household income at the time, $52,250.
The gap seems to be growing between what Americans earn and what they consider a sufficient income. The Gallup figure from 2013, $58,000, was about 10 percent higher than the median household income for that year. The 2023 Gallup figure, $85,000, exceeds the current median income by about 20 percent.
A lot has changed in a decade. In 2023 America, the average family might reasonably expect the price of groceries and gas to climb by 5 percent or 10 percent per year into perpetuity. The average homeowner might assume mortgage rates will remain in the 5-percent to 7-percent range for the foreseeable future, after a decade of historically low rates.
Therefore, American families would have good reason, economists say, to dial up their expectations for what it takes to live comfortably.
Salaries haven’t kept pace with inflation. Rising interest rates have pushed up housing costs. The SmartAsset report found that the average income to maintain a “comfortable lifestyle” rose by 20 percent between 2022 and 2023, from $57,013 to $68,499 in take-home pay, in the 25 largest metro areas.
That report, derived from MIT’s Living Wage Calculator, assumes the average family will allocate half of its after-tax income to basic living expenses, 30 percent to discretionary spending and 20 percent to savings and debts.
By that formula, a resident would need to clear $84,000 a year to live comfortably in San Francisco, $78,500 in New York and $76,000 in Washington, D.C., the study found.
Looking at actual salaries in those cities, it would appear that many residents do not live comfortably. Median per-capita income is about $124,000 in San Francisco, $85,000 in New York and $81,000 in D.C., according to the Census. Those are pre-tax figures: take-home pay ranges much lower.
One key factor in rising living costs is spiraling housing expenses. Monthly rents have outpaced inflation. Last spring, the median monthly asking rent surpassed $2,000 for the first time, according to Redfin.
Housing prices, meanwhile, surged by more than 40 percent in two years, from an average of $383,000 in early 2020 to $553,000 in late 2022, according to federal data. The figure slipped to $516,500 this year, as higher mortgage rates sapped purchasing power.
Cars, too, are becoming luxury purchases. The average price for a new vehicle hit $49,500 at the end of 2022, up from $38,948 three years earlier, according to the Kelley Blue Book.
Vehicle prices rose partly because of supply-chain kinks and pandemic shutdowns. Another factor was the demanding American consumer. Buyers pushed up prices by consistently choosing more expensive SUVs and tricked-out trucks over value-priced sedans.
“There’s a lot of debate about how much our expectations are feeding inflation,” said Lisa Gennetian, an applied economist at Duke University.
Homebuyers are seeking ever-larger homes. The average new home grew by 1,000 square feet between the mid-1970s and mid-2010s, according to an analysis by the American Enterprise Institute.
The same principle applies in other areas of family life, Gennetian said. An affluent household might consider private school part of a basic annual budget, while a less wealthy household might struggle to fulfill the fall supply list at public school.
“For some people, private tutoring for my kids, that could be part of my standard of living,” Gennetian said. “Other people, they might be thinking about having a running car.”
THERE IS NO MIDDLE CLASS NOR A CONSUMER CLASS THESE ARE 1960'S AMERICAN SOCIOLOGICAL TERMS TO DENY THE MARXIST DEFINITION OF CLASS; WHICH MAKES US ALL WORKING CLASS REGARDLESS OF OUR INCOME OR EARNING POWER BECAUSE OF OUR RELATIONS TO THE MEANS OF PRODUCTION WHICH WE HAVE NO CONTROL OVER.
Patrick Villanova, CEPF®
Wed, June 21, 2023
Single family houses with city skyscrapers in the background.
The middle class has long been considered the backbone of the American economy. But the American middle class is shrinking. The percentage of adults living in middle-income households in the United States fell by more than 10 percentage points over the last 50 years1, indicating an ongoing shrinkage of the middle class.
To find the true pulse of today’s middle class, SmartAsset calculated the bounds on middle class earnings in 100 of the largest U.S. cities, as well as all 50 states.
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Key Findings
Northeastern salaries are about 20% higher than Southern salaries — even after accounting for cost of living differences. The Northeast dominates the top 10 highest middle class salary ranges, with many middle class salaries between $60,000 to $170,000. Meanwhile, that same middle class bracket falls between about $35,000 to $100,000 in many Southern states. While the top-placing Northeastern states cost roughly 50% more to live in that the low-ranking Southern states, the middle class salary range sits about 70% higher2.
The middle class in NYC aren’t making enough to keep up with the cost of living. While other notoriously pricey cities like San Francisco and Seattle have a middle class income that trends closely with the general cost of living, New York City wages lag behind. While the middle class wage range was middle of the road of all cities examined, the cost of living in Queens, Brooklyn and Manhattan are 43%, 70% and 138% higher than the national average, respectively.
Middle class status is hardest to attain in tech cities. Three out of the top five cities with the highest income thresholds for the middle class are located in the San Francisco Bay Area in California. These middle income residents need to make at least $81,623 in San Francisco, $84,673 in San Jose and $104,499 in Fremont. Seattle residents similarly need to make at least $74,223.
You’re middle class even if you make $310,000 in this California city. Households that earn up to $311,936 per year in Fremont, California, are still technically considered middle class. That’s the highest ceiling for any city in our study – Fremont’s median household income ($155,968) is almost $30,000 more than the next highest city.
Cities With the Highest Middle-Class Ceilings
1. Fremont, CA
Fremont has the highest minimum threshold for middle class at $104,499, going all the way up to nearly $312,000. Households here need a minimum income of $104,499 to be considered middle class. Fremont’s proximity to the high-paying jobs of Silicon Valley contributes to its high median income of $155,968. This Bay Area city has nearly 230,000 residents, and almost one-tenth of that population works at Tesla3.
2. San Jose, CA
San Jose is the third-largest city in California and home to high-profile technology companies, including Adobe, Cisco Systems, eBay, PayPal and Zoom. Middle class households here earn between $84,673 and $252,754.
3. Arlington, VA
Arlington, situated on the banks of the Potomac River, benefits from its proximity to Washington D.C. and a highly-educated workforce. Over 76% of residents 25 and older hold a bachelor’s degree or higher, more than double the national average4. The federal government is Arlington’s top employer, with the Department of Defense and a number of other agencies based there5. Middle class households here earn up to $251,302 per year, while those earning less than $84,186 miss the threshold.
4. San Francisco, CA
While some large tech companies are based in San Francisco, including Salesforce, Uber and Twitter, the city is also home to non-tech brands like Wells Fargo and The Gap. Middle class households here earn between $81,623 and $243,652. But buying a home in the City by the Bay can be a challenge. The median home value in Frisco is $1.2 million dollars6.
5. Seattle, WA
In Seattle, households earning up to $221,562 are still considered to be middle class. Those earning less than $74,223, however, haven’t yet entered this middle income group. Nearly 66% of residents 25 and older hold a bachelor’s degree or higher and there are plenty of high-profile local companies to work for, including Amazon, Starbucks and Boeing.
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6. Irvine, CA
While the healthcare and technology industries contribute to Irvine’s economy, the University of California, Irvine remains the city’s largest employer with over 25,000 faculty and staff7. Middle class households in this Orange County city earn between $70,869 and $211,548 annually.
7. Gilbert, AZ
Located in the Phoenix metropolitan area, Gilbert’s population has grown 31% from 208,000 residents in 2010 to 273,000 in 20228. The median household income of $104,802 sits comfortably in the middle class range of $70,217 and $209,604 per year.
8. Scottsdale, AZ
Scottsdale is a popular tourist destination with numerous resorts, spas and golf courses. Located about 30 minutes north of Gilbert, this city is also home to healthcare and technology companies9. Middle class families here make between $66,395 and $198,194.
9. Plano, TX
Located in the Dallas-Fort Worth Metroplex, Plano is home to 287,000 residents. The local economy is partially supported by the presence of some of the biggest names in banking. JP Morgan Chase, Capital One and Bank of America are the three largest employers in Plano, with a combined total of almost 20,000 workers10. Middle-class families here earn between $63,651 and $190,004. Plano has the lowest average home value of the top 10, at an average $487,000.
10. Chandler, AZ
Chandler is the third Phoenix area city in the top 10. The largest employers here include Intel, Wells Fargo and the local school district11. Middle class households here earn between $63,391 and $189,226 per year, while the average home value in Chandler sits just above Plano’s at $492,000.
What It Takes to Be Middle Class in the 50 States
Maryland, Washington D.C. and Massachusetts have the three highest floors for the middle class at a statewide level. In all three places, it takes an annual income of more than $60,000 for households to be considered middle class. New Jersey ($59,828) and New Hampshire ($59,272) round out the top five.
At the other end of the spectrum, Mississippi is the state that requires the lowest annual income to be a part of the middle class ($32,640). The Magnolia State is followed by West Virginia ($34,336), Louisiana ($34,898), Arkansas ($35,194) and Alabama ($36,122).
Data and Methodology
To determine the income limits to be in the middle class, SmartAsset analyzed U.S. Census Bureau’s 2021 1-year American Community Survey data for the median household income in all 50 states, as well as the 100 largest U.S. cities. We relied on a variation of the Pew Research definition of middle-income households, which defines a middle class salary range by two-thirds to double the median U.S. salary. We used the local median salary for states and large cities to account for the diversity of financial realities among locales.
1Pew Research Center
2The Council for Community and Economics Research Cost of Living Index, Q3 2022
3City of Fremont, California Annual Comprehensive Financial Report 6/30/2022
4U.S. Census Bureau ACS 1 Yr 2021
5City of Arlington, Virginia Annual Comprehensive Financial Report 6/30/22
6Zillow, data pulled 4/6/23
7City of Irvine, California Annual Comprehensive Financial Report 6/30/22
8U.S. Census Bureau Population Estimate Program 2022
9City of Scottsdale, Arizona Annual Comprehensive Financial Report 6/30/22
10City of Plano, Texas Annual Comprehensive Financial Report 6/30/22
11City of Chandler, Arizona Annual Comprehensive Financial Report 6/30/2021
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