Is the American middle class really no better off today than in 1979? Not according to the CBO

By James Pethokoukis of AEI.

Are most Americans really no better off now than they were decades ago? Have living standards gone nowhere? It is a claim some policy activists and policymakers make. But it is hard to square such claims with a new report from the nonpartisan Congressional Budget Office. Lots of cool data in there, but let’s focus on the broad middle class, the 21st to 80th income percentiles. How has it been doing since 1980?

One way is to look at “income before transfers and taxes” — or roughly market incomes plus social insurance benefits such as Social Security and Medicare — which was up 28%. So not zero, but not blazing fast growth. But, again, not zero or even close

Another approach is to look at “income after transfers and taxes” — market income plus social insurance benefits plus means-tested transfers (Medicaid, food stamps) minus federal taxes — which was up considerably more, 42%. Even more not zero! More impressive still: Incomes for the bottom fifth are up nearly 70%.

The “income after transfers and taxes” also does a lot to reduce inequality vs. “income before transfers and taxes” — as the following two charts show (breaking out the top 1%):