Countdown to Tax Reform, Part I: Not Your Father's Middle Class

October 11, 2005

Fiscal Fact No. 32

As lawmakers begin to debate the various tax reform plans under consideration, some groups will urge them to “protect the middle-class” from any change in the tax burden they already bear. By middle-class, it is usually meant those taxpayers in the statistical middle 20 percent of the income scale—those taxpayers earning between roughly $25,000 and $42,000 per year.

But over the past few decades the composition of American taxpayers has changed dramatically—especially among those taxpayers in the statistical middle. The stereotype of “Ozzie and Harriet,” the married, single-earner family of the 1950s is no longer typical in the middle one-fifth of the income scale. On the contrary, the middle one-fifth of the income scale looks more like the cast from the popular TV program “Friends”—single individuals and unmarried parents with children.

Changing Face of America's Taxpayers
Figure 1 shows the gradual transformation of America from a nation of married taxpayers to a nation of single taxpayers. In 1960 some 65 percent of all tax returns were filed by married couples whereas 35 percent were filed by single individuals (including head of household filers). By 1980, the number of married filers and single filers were roughly equal. Today, the composition of taxpayers is nearly the reverse of what it was in 1960; nearly 60 percent of filers are single, while roughly 40 percent are married.

Figure 1: Singles Are Now the Majority of Taxpayers

Note: Single includes head of household filers; married includes married filing separately. Source: Internal Revenue Service.

Table 1 shows this transformation in greater detail, separating the two types of married filers (married filing separately and married filing jointly) and the two types of single filers (single and head of household). Remarkably, in 1990 single filers overtook married filing jointly as the largest filing status of all taxpayers and now outnumber all married filers combined.

Table 1. Historical Composition of Tax Filers by Filing Status

Year Married, Separate Married, Joint Married Total Head of Household Single Single Total
1960 3.3% 61.9% 65.2% 1.7% 33.1% 34.8%
1965 4.2% 58.4% 62.6% 2.8% 34.5% 37.3%
1970 3.2% 57.4% 60.6% 4.8% 34.6% 39.4%
1975 2.4% 53.9% 56.3% 6.1% 37.7% 43.8%
1980 1.8% 48.7% 50.5% 8.3% 42.0% 50.3%
1985 0.9% 47.1% 48.0% 9.9% 42.1% 52.0%
1990 1.9% 42.9% 44.8% 11.6% 43.9% 55.5%
1995 2.2% 41.5% 43.7% 13.2% 43.0% 56.2%
2000 1.9% 38.9% 40.8% 14.1% 45.1% 59.2%
2001 1.9% 39.2% 41.1% 14.2% 44.7% 58.9%
2002 1.8% 39.4% 41.2% 14.7% 44.0% 58.7%

Source: Internal Revenue Service

The explosive growth in the number of single taxpayers—and single-parent households—over the past four decades has had a profound effect on the composition of the statistical “middle-class” and on the overall distribution of income of all taxpayers. Indeed, much of the recent concern over the “shrinking middle-class” or the rising income disparity between the “rich” and “poor” can be attributed to the growing army of single taxpayers flooding the lower income groups and pushing married couples (who we’ll see are often dual-income, older, and better educated) into ever higher income groups.

Figure 2 shows the composition of filing status within the major income groups. In an almost mirror image of each other, the lower income groups are dominated by single filers while the upper income groups are overwhelmingly populated by married filers.

Figure 2. Married Couples Are "Upper-Income," Singles Are "Lower Income"

Source: Tax Foundation calculations for 2004 based on IRS data.

Among the bottom 20 percent of taxpayers, 84 percent are single while just 16 percent are married. By contrast, 86 percent of those taxpayers in the top 20 percent are married while just 14 percent are single. As we’ll see later, many of these high-income married couples are simply dual-income. It’s easy to see that with two incomes, working couples appear twice as wealthy as single individuals.

Just as interesting, however, is the composition of taxpayers within the statistical middle. Figure 2 shows that a majority of taxpayers within the “middle-class” are either single individuals or single parents with children, while a 43 percent minority are married couples.

The New Middle Class
What this means is that over the past four decades Ozzie and Harriet have been largely displaced in the statistical middle by single workers, a fact that requires us to revise our conceptions of the term “middle-class”. For most Americans, the term “middle-class” is more than a point on some statistical income scale. It represents a value system that binds people across income levels.

The 2005 Tax Foundation Annual Survey of U.S. Attitudes on Tax and Wealth asked those polled to identify if they considered themselves “lower-class”, “middle-class”, or “upper-class”. As with most surveys, the majority of respondents viewed themselves as middle class. Only 2 percent of U.S. adults consider themselves upper class, and fully 79 percent say they are lower-middle, middle, or upper-middle class.

That said, when we think of a stereotypical “middle-class” taxpayer, our image is that of an intact family with children, not a single male in his first job out of college. If that is what most people think of as middle-class then, as we will soon see, the new middle-class is actually at the upper end of the income scale and appear statistically “rich” on paper.

(This "Fiscal Fact" is based on the forthcoming Tax Foundation book Putting a Face on America's Tax Returns. For more information please contact Bill Ahern at (202) 464-5101).

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