Testimony of Paul Taylor, Executive Vice President, Pew Research Center to the Senate Finance Committee

I. Overview

Chairman Baucus, Ranking Member Grassley and members of this Committee, thank you for the opportunity to testify at this hearing on middle class tax relief, and allow me to make one thing clear at the outset: I am not a tax policy expert. Nor am I an economist, though I have colleagues who are. I am appearing before you today as the principal author of a report the Pew Research Center released last year entitled, “Inside the Middle Class: Bad Times Hit the Good Life.” The report combines findings of one of our major national public opinion surveys with the Center’s analysis of four decades of demographic and economic trends from the Census Bureau and other sources.

The Pew Research Center does not take positions on policy issues. We are a nonpartisan “fact tank” that generates information we hope will be of value to policymakers. My testimony today summarizes and updates some of the key findings of our 169 page report. Among them:

• About half of all Americans think of themselves as middle class. Economically and demographically, they are a surprisingly varied group.
• Middle-class Americans believe they’ve stagnated in the past five years. But they also believe they have a higher standard of living than their parents had.
• Income data from the Census say they’re right on both fronts. Even before the onset of the current recession, this decade had witnessed the longest stretch in modern U.S. economic history in which median household income failed to surpass an earlier peak (in 1999). However, over a longer haul — since 1969 — median household income has risen by 41%, after adjusting both for inflation and changes in household size.
• For middle-income Americans, the past several decades have been characterized by rising prosperity and rising inequality. The middle income tier has fallen farther behind the upper income group in both income and wealth.
• For the past two decades — until the current recession — middle income Americans had been spending more and, relative to their income, borrowing much more. Housing was the key driver of both trends.
• Since 1970, the middle income tier in America has shrunk by about 5 percentage points. This small but notable hollowing out has been accompanied by an increase in the share of adults in both the upper and lower income tiers.
• Since 1970, the demography of the middle-income tier has changed in much the same way that the composition of the U.S. population as a whole has changed. It is older, better educated, less likely to be white and less likely to be married.