Melissa Kearney, Benjamin Harris, Elisa Jácome, and Lucie Parker
POLICY MEMO | DECEMBER 2013
A Dozen Facts about America’s
Struggling Lower-Middle Class
WWW.HAMILTONPROJECT.ORG
ACKNOWLEDGEMENTS
The Hamilton Project is grateful to Karen Anderson, Stacy Dean,
David Dreyer, Robert Greenstein, Meeghan Prunty, and Dorothy
Rosenbaum for innumerable insightful comments and discussions.
It is also grateful to William Dyess, Laura Howell, Andrew Kim,
Jeremy Patashnik, Joseph Sullivan, and Lindsey Underwood.
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A Dozen Facts about America’s
Struggling Lower-Middle Class
Introduction
Many American families whose incomes are not low enough to ocially place them in poverty
live in economically precarious situations. is struggling lower-middle class consists of the 30 percent of
working-age families with children who have incomes between 100 and 250 percent of the federal poverty
level (FPL), or between roughly $15,000 and $60,000, depending on family composition. ough not ocially
poor, these individuals and families experience limited economic security. One major setback could thrust
them into economic chaos.
e struggling lower-middle class encompasses low- and middle-skilled workers whose wages have stagnated
in recent decades (Autor, Katz, and Kearney 2008). More than half of these families are headed by married
couples, and of these families, roughly half rely on two earners to make ends meet. While lower-middle-
class families face many challenges, this policy paper focuses on two pointed struggles—food insecurity and
low returns to work due to the design of tax and transfer programs.
Compared to families ocially living in poverty, these struggling lower-middle-class families have
substantially dierent characteristics: they have higher rates of marriage, more dual-earning spouses, and
higher levels of educational attainment, yet they face some of the same challenges faced by families living
in poverty. For example, these households are oen unable to meet the most basic requirement of obtaining
a sucient diet. In 2012 more than 24 percent of struggling lower-middle-class children ages twelve to
seventeen (or approximately 1.7 million children) lived in a household identied as being food insecure.
Many of these families also rely on government programs for income support. In 2012 approximately one in
three struggling lower-middle-class families (approximately 3.7 million families) relied on at least one major
federal government transfer program. In fact, more than 20 percent of families (approximately 2.4 million
families) relied on food stamps in that year alone.
An array of tax and transfer programs—including food stamps, Medicaid, and the Earned Income Tax
Credit (EITC)—strengthen the resources available to struggling lower-middle-class families and provide
Melissa Kearney, Benjamin Harris, Elisa Jácome, and Lucie Parker
framework to consider what policies would be appropriate for
strengthening their economic security and well-being.
ese facts focus on those who are above the federal poverty
level, and yet are still quite economically insecure, relying
on government transfers, facing high levels of anxiety about
being able to feed their families, and facing extremely high
marginal tax rates as they try to work themselves securely
away from poverty.
Chapter 1 describes the group we dene as made up of
struggling lower-middle-class families. Chapter 2 focuses on
the challenge of food insecurity and provides information
about the nation’s most-important and wide-reaching
government program focused to address this issue, the
Supplemental Nutritional Assistance Program (SNAP).
Chapter 3 presents evidence about the relevant set of tax and
transfer programs facing the struggling lower-middle class,
highlighting how this panoply of programs can inadvertently
make the climb into middle-class security more dicult.
Introduction continued from page 1
a safety net for families in need. Income-support programs
undoubtedly improve the economic well-being of families
on the cusp of poverty, but they oen come with unintended
consequences. One major problem, highlighted in this paper,
is the implicit tax on families who receive reduced benets as a
result of higher earnings. Transfer-program benets phase out
as family earnings rise, which reduces the return to work and
makes it dicult for these families to work their way rmly
into a better economic life.
A founding principle of e Hamilton Project’s economic
strategy is that long-term prosperity is best achieved by
fostering economic growth and broad participation in that
growth. is principle calls for economic security among
a thriving and prosperous middle class, which has been a
long-celebrated feature of our nation’s social and economic
fabric. In this spirit, we oer “A Dozen Facts about America’s
Struggling Lower-Middle Class” to bring attention to who
these families are, to highlight two particular challenges
facing this broad group of American society, and to set up a
CHAPTER 1: A Snapshot of Struggling
Lower-Middle-Class Families
Many families in America’s struggling lower-middle class—dened to include those with income
between 100 and 250 percent of the federal poverty level, or between roughly $15,000 and $60,000,
depending on family size and composition—live in economically precarious situations. ough not
ocially poor, these families experience limited economic security; one major setback in income
could push them into poverty.
1. More than half of families in the United States earn $60,000 or less
per year.
2. Nearly half of families in the United States live below 250 percent of
the federal poverty level.
3. Struggling lower-middle-class families are almost equally headed by
single parents and married couples.
4. Nearly one out of two families in the struggling lower-middle class is
headed by an adult who has attended college.
5. Nearly one-third of struggling lower-middle-class families rely on
income support from a government program.
families earn $40,000 or less each year, 54 percent of families
earn $60,000 or less (demonstrated by the black dotted line),
and 76 percent of working-age families earn $100,000 or less.
For working-age families with children, earning over $100,000
is the exception, not the rule.
e vertical bars in gure 1, corresponding to the le axis,
show the percent of families that fall within various income
ranges. About 15 percent of working-age families (or
approximately 5.6 million families) earn between $1 and
$20,000 a year, while 19 percent of families (approximately
7.1 million families) earn between $20,001 and $40,000. On
the opposite end of the distribution, fewer than 3 percent of
families earn more than $260,000.
More than half of families in the United States
earn $60,000 or less per year.
More than half of America’s working-age families with
children under age eighteen (approximately 20.1 million
families) have annual incomes of $60,000 or below. is is
true whether we consider only earned wages and salary, or
if we use a broader denition of pretax, pretransfer income,
which also includes some unearned sources of income, such as
investment income and alimony payments. Figure 1 shows the
distributions for working-age families by (1) earned income,
and (2) pretax, pretransfer income. (Neither of these measures
includes taxes or transfer payments.)
e blue and green dotted lines in gure 1, corresponding
to the right axis, show the cumulative share of families with
income under various thresholds. Around 40 percent of
1.
Chapter 1: A Snapshot of Struggling Lower-Middle-Class Families
Income Distributions for Working-Age Families with Children Under 18
More than half of families in the United States earn $60,000 or less per year, and about three-fourths earn $100,000 or less.
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five. A family’s earned income is the sum of each family member’s total pretax
wage and salary income. Pretax, pretransfer income is the sum of earned income and additional sources of nontransfer income (e.g., interest, dividends, or alimony). For more details, see the
technical appendix.
0
5
10
15
20
25
0
20
40
60
80
100
10
30
50
70
90
Pretax, pretransfer incomeEarned Income
1–20,000
0
20,001–40,000
40,001–60,000
60,001–80,000
80,001–100,000
100,001–120,000
120,001–140,000
140,001–160,000
160,001–180,000
180,001–200,000
200,001–220,000
220,001–240,000
240,001–260,000
260,001 or more
Percent of families
Family income (in dollars)
Cumulative percent of families
54 percent of families earn $60,000 or less.
and two children, the FPL was $23,283 (250 percent of the
FPL was $58,208); and for a family with two adults and three
children, the FPL was $28,087 (250 percent of the FPL was
$70,218) (U.S. Census Bureau 2012).
ese families’ proximity to the poverty line means that any
unanticipated downturns in income could push them into
poverty. For this reason, we could reasonably consider these
families to be the struggling lower-middle class. Figure 2
illustrates the income distribution relative to the FPL for
working-age families with children under age eighteen.
Together, these statistics (represented by the dotted black
line) reveal that nearly half of American families live either in
poverty or in the struggling lower-middle class.
Nearly one in ve American working-age families with
children lives in poverty, ocially dened as being below 100
percent of the federal poverty level (FPL). Approximately 30
percent of families have incomes that place them between 100
and 250 percent of the FPL. Federal poverty thresholds vary
by family size and composition, meaning that families with
the same income, but with dierent household compositions,
can be in dierent positions relative to the FPL.
e U.S. Census Bureau dened the FPL in 2012 for a family
made up of one adult and one child to be $15,825 (250 percent
of the FPL for this family was therefore $39,563); for a family
with two adults and one child, the FPL was $18,480 (250
percent of the FPL was $46,200); for a family with two adults
Nearly half of families in the United States live
below 250 percent of the federal poverty level.
2.
Chapter 1: A Snapshot of Struggling Lower-Middle-Class Families
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five. We constructed income relative to the FPL by dividing a family’s total income
(the sum of each family member’s total pretax personal income from all sources) by the Census Bureau’s corresponding official poverty threshold. The shaded gray area represents the struggling
lower-middle class (or 100 to 250 percent of the FPL). For more details, see the technical appendix.
Percent of families
Cumulative percent of families
Family income relative to the FPL (percent)
0
2
4
6
8
10
12
0–49
50–99
100–149
150–199
200–249
250–299
300–349
350–399
400–449
450–499
500–549
550–599
600–649
650–699
700–749
750–799
800–849
850–899
900–949
950–999
1000 and over
0
20
40
60
80
100
10
30
50
70
90
49 percent of families live below 250% of the federal poverty level.
Income Distribution for Working-Age Families with Children Under 18 Relative to the
Federal Poverty Level (FPL)
Almost one-third of American families are in the struggling lower-middle class, where any unanticipated downturns in income
could push them into poverty.
Struggling lower-middle-class families are
almost equally headed by single parents and
married couples.
3.
As illustrated in gure 3, household composition of families in
the struggling lower-middle class varies substantially from the
household composition of families in poverty. Of families with
income below the federal poverty level (FPL) (approximately
7.1 million families), 70 percent are headed by a single parent
(61 percent are single female parents), 24 percent are headed by
a married couple with one or two earners, and 6 percent are
headed by a married couple with no earners.
e composition of the struggling lower-middle class—dened
here as working-age families with children under age eighteen
whose income places them between 100 and 250 percent of the
FPL—is markedly dierent from families in poverty in terms of
marriage and number of earners. Of families in the struggling
lower-middle class (approximately 11.4 million families), 44
percent are headed by a single parent (34 percent are single
female parents), 27 percent are headed by a single-earner
married couple, another 27 percent are headed by a dual-earner
married couple, and 2 percent are headed by a married couple
with no earners.
Chapter 1: A Snapshot of Struggling Lower-Middle-Class Families
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five. An earner is defined as an individual who has earnings greater than zero.
Single, male
Single, female
Married, zero earners
Married, one earner
Married, two earners
Below 100% of FPL Between 100% and 250% of FPL
6%
19%
5%
9%
61%
27%
27%
10%
34%
2%
Breakdown of Family Characteristics, by Income Relative to the Federal Poverty Level
(FPL)
In contrast to families in poverty, over half of struggling lower-middle-class families are headed by a married couple, and about
half of those married couples comprise two earners.
Nearly one out of two families in the
struggling lower-middle class is headed by an
adult who has attended college.
4.
College attainment diers markedly by poverty status. As
illustrated in gure 4, 33 percent of household family heads
below 100 percent of the federal poverty level (FPL) attended
at least some college, although just 6 percent of those family
heads have a bachelor’s degree or higher. Among household
family heads with income between 100 and 250 percent of the
FPL, 48 percent have attended some college, and 14 percent
have a bachelor’s degree or higher.
In stark contrast to those living at or below 250 percent of the
FPL, 77 percent of household family heads above 250 percent
of the FPL attended at least some college, and about half have
a bachelor’s degree or higher. Only a very small share of this
group (4 percent) did not earn a high school diploma.
Chapter 1: A Snapshot of Struggling Lower-Middle-Class Families
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five. The category “some college” includes an associate degree or having some
college, but no bachelor’s degree. Estimates may not add up to 100 percent due to rounding.
Bachelor's degree
More than college
Less than high school
High school diploma
Some college
Percent of family heads
0 20 40 60 80
100
10 30 50 70 90
32 35 27 5 1
17 34 34 11 3
4 28 3119 18
Below 100% of FPL
Between 100%
and 250% of FPL
Above 250% of FPL
Highest Educational Attainment of Family Head, by Income Relative to the Federal
Poverty Level (FPL)
Nearly one out of two family heads in the struggling lower-middle class has attended college; approximately one out of eight
family heads has a bachelor’s degree or more.
A majority of working-age families with children living below
the federal poverty level (FPL) receive federal transfer programs.
Of the families that rely on at least one government transfer
program, almost all receive food stamp benets through the
Supplemental Nutrition Assistance Program (SNAP). Federal
transfer programs are not just for the very poor, however. As
shown in gure 5, approximately 33 percent of families with
incomes between 100 and 250 percent of the FPL depend on
at least one government transfer program for income support.
SNAP is by far the most prevalent transfer program for this
group, with 21 percent of these families (approximately 2.4
million families) depending on SNAP for food assistance at
some point during the year. It is important to note that families
only receive benets when their income is low, such as during
spells of unemployment, but not in months when their income
is higher than SNAP’s income threshold of 130 percent of the
FPL. is highlights the role of SNAP in supporting families
through temporary downturns, and the short-term dependence
on the program for many beneciaries.
Figure 5 shows only the share of families who depend on
various transfer programs in a single year; a much larger
share will rely on transfers at some point in their lives. For
example, while in any given year most Americans will not rely
on food stamps—approximately 17 percent of children under
age eighteen participated in SNAP in 2007 before the Great
Recession—between the ages of twenty and sixty-ve, more
than half of Americans will receive SNAP benets (Lein and
Wolkwitz 2009; Rank and Hirschl 2005; U.S. Census Bureau
2008). In addition to these transfer programs, tax credits, such
as the Earned Income Tax Credit (EITC) and the Child Tax
Credit (CTC), are important sources of income support for low-
to moderate- income families. ese two programs transferred
$59 billion and nearly $57 billion, respectively, in 2012 (e
Joint Committee on Taxation 2013).
Nearly one-third of struggling lower-middle-class
families rely on income support from a
government program.
5.
Chapter 1: A Snapshot of Struggling Lower-Middle-Class Families
Percent of Working-Age Families Who Receive Select Government Transfers, by Income
Relative to the Federal Poverty Level (FPL)
Many families in poverty and in the struggling lower-middle class rely on government transfers, with the Supplemental Nutrition
Assistance Program (SNAP) being by far the most common program.
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five.
Between 100% and 250% of FPLBelow 100% of FPL
Percent of families
Supplemental
Security Income
Unemployment
benets
Welfare
benets
Disability
benets
SNAP Any of these
transfers
0
10
20
30
40
50
60
70
CHAPTER 2: The Struggling Lower-Middle Class,
Food Insecurity, and the Supplemental Nutrition
Assistance Program (SNAP)
Similar to families living in poverty, many families in America’s struggling lower-middle class
are not comfortably able to aord a sucient diet. Food insecurity in households with children
is widespread, existing in every state. e Supplemental Nutrition Assistance Program (SNAP)
serves a fundamental role in mitigating food insecurity and providing food assistance to both poor
and struggling lower-middle-class families.
6. Roughly 40 percent of children in the struggling lower-middle class
experience food insecurity or obesity, or both.
7. More than one in ve children faces food insecurity in thirty-seven
states and the District of Columbia.
8. Nearly 90 percent of Supplemental Nutritional Assistance Program
(SNAP) recipients live in a household with at least one child, one
disabled individual, or one elderly individual.
Roughly 40 percent of children in the
struggling lower-middle class experience
food insecurity or obesity, or both.
6.
Children from low-income households have high rates of food
insecurity or obesity, or both. e U.S. Department of Agriculture
(USDA) classies a household as food insecure when it has
limited or uncertain availability of nutritionally adequate and
safe foods or limited or uncertain ability to acquire acceptable
foods in socially acceptable ways (USDA 2000).
Figure 6 illustrates the diering nutritional circumstances of
children based on their family’s income. More than 10 percent
of children in households below the federal poverty level (FPL)
are both food insecure and obese, and more than 50 percent
have at least one of these conditions. Unfortunately, children
in the struggling lower-middle class—children whose family
income places them between 100 and 250 percent of the FPL—
more closely resemble children in poverty than they do children
in higher-income groups (above 250 percent of the FPL). More
than 24 percent of children (or approximately 1.7 million
children) in the struggling lower-middle class are food insecure
and approximately 23 percent are obese; almost 7 percent
of these children simultaneously face both obesity and food
Chapter 2: The Struggling Lower-Middle Class, Food Insecurity, and the Supplemental
Nutrition Assistance Program (SNAP)
insecurity. In stark contrast, 85 percent of children living above
250 percent of the FPL face neither challenge. ese statistics
highlight the diverging nutritional conditions of children by
socioeconomic status.
Food insecurity, especially among children, is particularly
worrisome given the potential negative eects of hunger
during childhood. Studies have documented the importance
of early-life events, such as nutrition, on adult outcomes such
as earnings and mortality (Almond and Currie 2011). During
the initial rollout of the program in the 1960s, if mothers had
access to food stamps during pregnancy, their newborns had
higher birth weight (Almond et al. 2011). Academic research
has also shown that individuals who had access to food stamps
had markedly better long-run health than individuals who did
not have access to food stamps (Hoynes et al. 2012). Among
women, this study also found that access to food stamps during
childhood improved adult economic outcomes, ranging from
more education and higher lifetime earnings, to lessened
reliance on federal safety-net programs.
Sources: CDC 2001, 2012; authors’ calculations.
Note: The sample includes children aged twelve to seventeen. We classified children as obese if their body mass index (BMI) exceeds the 95th percentile BMI for each age and gender. Children
are considered food insecure if they live in a household that has limited or uncertain availability of nutritionally adequate and safe foods or limited or uncertain ability to acquire acceptable foods in
socially acceptable ways (USDA 2000). For more details, see the technical appendix.
Obese, but not food insecure Food insecure, but not obeseBoth food insecure and obese
Percent of children
Below 100% of FPL Between 100% and 250% of FPL Above 250% of FPL
0
10
20
30
40
50
60
Child Food Insecurity and Obesity Rates, by Income Relative to the Federal Poverty Level (FPL)
Children in families living below 250 percent of the FPL are much more likely to struggle with food insecurity and obesity than
are their higher-income peers.
the country, one in ten children is food insecure. Furthermore,
in thirty-seven states and the District of Columbia more than
one child in ve is food insecure, as represented in gure 7.
ere are regional patterns with regard to child food insecurity:
the most food-insecure states are consistently located in the
South and the West. Indeed, with the exception of Ohio, all of
the states with child food insecurity rates above 25 percent are
located in these two regions.
More than one in ve children faces food
insecurity in thirty-seven states and the
District of Columbia.
7.
Food insecurity exists everywhere in the United States, with
more than 16 percent of individuals living in households
reporting conditions indicating food insecurity (Coleman-
Jensen, Nord, and Singh 2013). e share of children living in
food-insecure households, approximately 22 percent, is even
higher (ibid.). e highest rates of child food insecurity in the
country are found in New Mexico and Washington, DC, where
roughly three out of ten children live in a household that is food
insecure. Even in North Dakota, the most food-secure state in
Chapter 2: The Struggling Lower-Middle Class, Food Insecurity, and the Supplemental
Nutrition Assistance Program (SNAP)
Child Food Insecurity Rates by State in 2011
Child food insecurity is widespread, with the highest rates appearing in the South and the West.
Source: Feeding America 2013.
Note: Children are considered food insecure if they live in a household that has limited or uncertain availability of nutritionally adequate and safe foods or limited or uncertain ability to acquire
acceptable foods in socially acceptable ways (USDA 2000).
15.0% to 19.9% 20.0% to 24.9%10.0% to 14.9% 25.0% and above
North Dakota
10.2%
Montana
21.8%
Washington
24.3%
Oregon
29.1%
Nevada
28.0%
California
27.3%
Utah
21.4%
Colorado
21.9%
New Mexico
30.6%
Texas
27.6%
Louisiana
23.5%
Arkansas
28.4%
Missouri
22.5%
Iowa
19.3%
Minnnesota
16.6%
Wisconsin
20.8%
Michigan
23.7%
Illinois
22.7%
Indiana
22.7%
Ohio
25.7%
Kentucky
22.4%
Tennessee
25.1%
Mississippi
27.4%
Georgia
28.8%
Florida
28.4%
South Carolina
27.4%
North Carolina
27.3%
Massachusetts
16.5%
Rhode Island
22.2%
Connecticut
19.8%
New Jersey
19.0%
Delaware
18.3%
Maryland
19.0%
D.C.
30.0%
Virginia
16.5%
West
Virginia
21.8%
Pennsylvania
20.5%
New York
22.0%
New Hampshire
14.7%
Vermont
19.3%
Maine
23.9%
Alabama
26.3%
Oklahoma
25.3%
Arizona
29.9%
Wyoming
18.0%
Idaho
23.0%
South Dakota
18.3%
Nebraska
21.0%
Kansas
22.6%
Alaska
20.3%
Hawaii
23.7%
however, and impose a time limit on the receipt of benets for
those who are not employed or in a work program at least half
time. Some of these policies can be suspended for areas with high
unemployment, and as a result, were suspended during the Great
Recession in most of the country, but have begun to be reinstated
throughout the country as the economy recovers.
Many of the participants (nearly 37 percent) live in single-
parent households with at least one child, but a sizable share
(more than 18 percent) live in households comprising married
adults with at least one child (Strayer, Eslami, and Lein
2012). In the year 2011 approximately 82 percent of SNAP
participants lived at or below the FPL in the month of SNAP
receipt, and these individuals received more than 91 percent of
all monthly SNAP benets (ibid.). In the same year, 45 percent
of SNAP participants were children, and 9 percent were elderly
individuals. SNAP’s benet expenditures were proportional,
with children receiving 44 percent of prorated SNAP benets
and elders receiving 7 percent (ibid.).
Nearly 90 percent of Supplemental Nutritional
Assistance Program (SNAP) recipients live in a
household with at least one child, one disabled
individual, or one elderly individual.
8.
e Supplemental Nutritional Assistance Program (SNAP)
caseload overwhelmingly comprises families with at least
one child, one disabled individual, or one elderly individual.
As illustrated in gure 8, 87 percent of SNAP participants in
2011 lived in such a household. e remaining 13 percent of
participants lived either in single-person or multiple-person
households that did not include at least one child, one disabled
individual, or one elderly individual.
SNAP participants who are aged eighteen to forty-nine, who are
not disabled, and who do not live with children are commonly
referred to as able-bodied adults without dependents, or ABAWDs;
they constitute roughly 10 percent of SNAP participants (Lee
2013). Most, but not all, of these ABAWDs are included within
the 13 percent of participants in gure 8. (ABAWDS can be in
the 87 percent if they themselves are able-bodied, aged eighteen
to forty nine, and live with an elderly or disabled person, but with
no children.) SNAP program rules typically require able-bodied
adults aged eighteen to forty-nine to satisfy work requirements,
Chapter 2: The Struggling Lower-Middle Class, Food Insecurity, and the Supplemental
Nutrition Assistance Program (SNAP)
Distribution of Participants Receiving Supplemental Nutrition Assistance Program
(SNAP) Benets by Household Composition in 2011
The vast majority of SNAP beneciaries live in a house with at least one child, one disabled individual, or one elderly individual.
Source: Strayer, Eslami, and Leftin 2012.
Note: Nondisabled adults ages eighteen to forty-nine in childless households are subject to work requirements and a time limit. Elderly individuals are aged sixty or older. Children are aged
newborn to seventeen.
Participants in
households with
at least one child,
one disabled
individual, or one
elderly individual
87%
Nonelderly, nondisabled adult
participants without dependents
in single-person households
Nonelderly, nondisabled
adult participants
without dependents in
multiple-person households
10%
3%
CHAPTER 3: The Struggling Lower-Middle Class,
Taxes, and Transfer Programs
A variety of government tax and transfer programs augment the resources available to struggling
lower-middle-class families. e phase-out of these transfer programs, however, makes it dicult for
these families to work their way into a more stable economic life.
9. America’s tax and transfer system expands the middle class.
10. Struggling lower-middle-class families depend on an array of tax and
transfer benets.
11. A low-income, single parent can face a marginal tax rate as high as
95 percent.
12. The highest marginal tax rates tend to fall on the struggling lower-
middle class.
benet, such as a food voucher in the case of the Supplemental
Nutrition Assistance Program (SNAP).
Figure 9 illustrates how the tax and transfer system changes the
distribution of income for working-age families with children.
Before taxes and transfers, about 5 percent of families have no
income, but this share falls to about 1 percent aer accounting
for taxes and transfers. Similarly, the share of families with
income between $1 and $20,000 falls from nearly 16 percent to
about 12 percent. On the other end of the income distribution,
there are fewer families in all of the income groups above
$80,000. e direct eect of the tax and transfer system is
to expand the middle class by compressing the number of
families located at either end of the income distribution and
raising the number of families in the middle range.
America’s tax and transfer system expands the
middle class.
9.
In the United States the system of taxes and transfers plays an
important role in determining the amount of income a family
ultimately has at its disposal. Taxes (such as federal and state
income taxes, payroll taxes, and property taxes) typically
reduce family income, but the tax system also provides credits
(such as the Earned Income Tax Credit [EITC] and the Child
Tax Credit [CTC]) that can increase the cash income for
qualifying families.
Transfer program and targeted tax benets protect families
against economic hardship and supplement low earnings,
which for some families could be zero. Some transfer programs
provide cash payments, such as Temporary Assistance for
Needy Families (TANF), and Supplemental Security Income
(SSI); others are in-kind programs, paying a nonmonetary
Chapter 3: The Struggling Lower-Middle Class, Taxes, and Transfer Programs
Income Distributions for Working-Age Families with Children Under 18 Before and
After Taxes
The tax and transfer system expands the middle class and leaves fewer families at either end of the income distribution.
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five. Pretax, pretransfer income is the sum of earned income and additional
sources of nontransfer income (e.g., interest, dividends, or alimony). A family’s posttax, posttransfer income is the sum of pretax, pretransfer income, all transfer income (e.g., SNAP, welfare, or
unemployment benefits), property and payroll taxes, and state and federal taxes after tax credits. For more details, see the technical appendix.
Posttax, posttransfer incomePretax, pretransfer income
Percent of families
Family income (in dollars)
0
1–20,000
20,001–40,000
40,001–60,000
60,001–80,000
80,001–100,000
100,001–120,000
120,001–140,000
140,001–160,000
160,001–180,000
180,001–200,000
200,001–220,000
220,001–240,000
240,001–260,000
260,001 or more
0
5
10
15
20
25
30
Median posttax, posttransfer income: $49,905
Median pretax, pretransfer income: $54,000
about $14,000 just below the FPL to about $7,500 at 250 percent
of the FPL.
While these programs undoubtedly improve the economic
security of low-income families, the programs’ impacts are not
included in the ocial measure of poverty. A family’s ocial
poverty status is based on pretax income, and thus does not
include benets received through the EITC or the Child Tax
Credit (CTC), nor does it include in-kind transfers, such as food
stamp benets, Medicaid, or housing assistance. Consequently,
ocial poverty estimates produced by the U.S. Census Bureau
reveal little to policymakers about the eect of these programs
on poverty and near-poverty rates. Additional measures of
poverty are needed to reveal the impact of the social safety net
on economic well-being in the United States (see Blank and
Greenberg 2008; and Meyer and Sullivan 2012).
Struggling lower-middle-class families depend on an
array of tax and transfer benets.
10.
Families living in poverty and among the struggling lower-
middle class have access to a number of income-support
programs. e nature and level of support of these programs
changes throughout the income distribution. For families below
the federal poverty level (FPL), the major transfer programs are
designed to provide for basic needs such as food and health care.
In addition, the Earned Income Tax Credit (EITC) is designed
to subsidize earnings. At higher levels of income, families have
access to child-related tax credits and health insurance exchange
subsidies implemented by the Aordable Care Act (ACA).
As shown in gure 10, struggling lower-middle-class families
benet from the EITC, Medicaid, and the Supplemental
Nutritional Assistance Program (SNAP), among other tax and
transfer benets. For the single-parent family with two children
illustrated in the gure, the total value of benets falls from
Chapter 3: The Struggling Lower-Middle Class, Taxes, and Transfer Programs
Tax and Transfer Benets for a Single Parent with Two Children by Household Earnings
in 2008
Most transfer programs phase out as families work their way into the lower-middle class.
Source: Maag et al. 2012.
Note: Figure shows value of tax and transfer benefits for a single parent with two children living in Colorado. Tax and transfer rules are for 2008 with hypothetical health insurance exchange
subsidy plans in 2014. CHIP is the Children’s Health Insurance Program. EITC is the Earned Income Tax Credit. SNAP is the Supplemental Nutrition Assistance Program. The shaded gray area
represents the struggling lower-middle class (or 100 to 250 percent of the FPL). For more details, see the technical appendix.
Value of benets (in dollars)
Household earnings (in dollars)
Earnings relative to federal poverty level (percent)
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
0
0 60 110 170 230 290 350 400 460 520 580
10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Exchange Subsidy (Adult)
Medicaid
CHIP
SNAP
Child and Dependent Care Credit
Child Tax Credit
EITC
Exchange Subsidy (Family)
A low-income, single parent can face a marginal
tax rate as high as 95 percent.
11.
e gap between the light and dark green lines in gure 11 shows
the eects of transfer phase-outs on this particular taxpayer’s
marginal tax rate: at the Medicaid limit, denoted by the rst
vertical black line, the phase-out of transfer benets increases her
marginal tax rate by about 60 percentage points—from around
negative 40 percent to about positive 20 percent. For this taxpayer,
the impact of transfer phase-outs could discourage additional
work that moves earnings beyond roughly $8,000. Low-income
households face a wide range of marginal tax rates depending on
program eligibility and family circumstances. As shown in this
gure, a low-income, single parent can face a marginal tax rate as
high as 95 percent.
Academic studies illustrate the complex impacts of tax and
transfer programs on worker behavior. For example, the EITC has
been shown to provide meaningful incentives for single parents
with children to work (Eissa and Liebman 1996; Meyer and
Rosenbaum 2001). For married mothers, however, the EITC tends
to provide a disincentive to work since the combined income of a
wife and husband reduces (and sometimes eliminates) a family’s
EITC benet (Eissa and Hoynes 2004a, 2004b).
Marginal tax rates for low-income families can be exceptionally
high. Marginal tax rates are the taxes paid on additional work
or investment. Eective marginal tax rates are determined by
taxes paid, tax benets received, and tax and transfer benets lost
due to extra income. For instance, as low- income families see an
increase in earnings, their transfer payments (such as Medicaid)
and tax credits (such as the Earned Income Tax Credit [EITC])
are phased out. is can raise eective marginal tax rates and
make the aer-tax return to additional earnings quite low.
In the absence of transfers, marginal tax rates tend to be low—
and oen negative—for low-income families. rough personal
deductions or exemptions, the tax code allows families to exclude
a share of their income from taxation. In addition, refundable tax
credits—tax credits that can drop a tax bill below zero—oen
make marginal tax rates negative. For the hypothetical taxpayer
illustrated in gure 11, marginal tax rates including taxes, but
not accounting for transfers, are around negative 40 percent,
indicating that these taxpayers would receive an additional 40
cents for every extra dollar earned. ese marginal tax rates turn
positive only at earnings of approximately $10,000.
Chapter 3: The Struggling Lower-Middle Class, Taxes, and Transfer Programs
Marginal Tax Rates under the System of Taxes and Transfers for a Hypothetical Single
Parent with One Child by Household Earnings in 2012
Given the phase-out of transfer programs and the progressivity of the tax code, the return to additional earnings can be close to
zero for many low-income workers.
Source: CBO 2012.
Note: The figures assume pre–American Taxpayer Relief Act (ATRA) tax law. CHIP is the Children’s Health Insurance Program.
0
0 50 100 150 200 250 300 350 400 450
10,000 20,000 30,000 40,000 50,000 60,000
Tax rate (percent)
Earnings (in dollars)
Earnings relative to federal poverty level (percent)
Federal income, payroll, and state income taxes Plus transfer programs
-40
-20
0
20
40
60
80
100
Medicaid: Income
limit for parent
CHIP: Income limit for
free coverage
CHIP: Income limit for
reduced-cost coverage
The highest marginal tax rates tend to fall on the
struggling lower-middle class.
12 .
transfer programs will oen lose their benets if they earn
additional income, while ineligible families face lower marginal
tax rates because they do not have any benets to lose. As
a result, families with earnings higher up on the income
distribution, who as a group tend to be ineligible for transfer
programs, experience less variation in marginal tax rates.
High marginal tax rates for some low-income families are a
byproduct of safety-net programs that aim to provide means-
tested benets—benets aimed at low-income families—to the
most vulnerable households. An unfortunate consequence is
that some low-income households have little incentive to work
because they risk losing signicant benets as they move up the
income distribution.
High marginal tax rates can make the aer-tax return to
additional earnings quite low. is low return to work means
that, ultimately, families with high marginal tax rates have
limited ability to improve their own well-being.
Marginal tax rates—the tax collected on an additional amount
of income or earnings—are oen highest for families at or just
above the federal poverty level (FPL). Low- to moderate-income
families see an increase in marginal tax rates as their transfer
payments (such as Medicaid) and tax credits (such as the Earned
Income Tax Credit [EITC]) are clawed back or phased out.
As shown in gure 12, marginal tax rates are highest for those
families with income at or above the FPL. For example, 10
percent of families with earnings between 100 and 149 percent
of the FPL have marginal tax rates of 60 percent or higher—
meaning that these families keep 40 cents or fewer of each
additional dollar they earn. For the poorest families and for
those with incomes above 250 percent of the FPL, the top 10
percent of marginal tax rates fall around 35–45 percent.
Figure 12 also illustrates that there is far more variation in
marginal tax rates for families near the FPL than for families
farther from it. is disparity is primarily due to the varying
eligibility for transfer programs. Families that qualify for
Chapter 3: The Struggling Lower-Middle Class, Taxes, and Transfer Programs
Distribution of Marginal Tax Rates under 2012 Law, by Earnings Relative to the
Federal Poverty Level (FPL)
Due to the design of tax and transfer programs, families in the struggling lower-middle class face some of the highest marginal
tax rates in the population.
Source: CBO 2012.
Note: The figures assume pre–American Taxpayer Relief Act (ATRA) tax law. CHIP is the Children’s Health Insurance Program. The shaded gray area represents the struggling lower-middle class
(or families whose income falls between 100 and 250 percent of the FPL).
0–49 50–99 100–149 150–199 200–249 250–299 300–349 350–399 400+
-10
0
10
20
30
40
50
60
70
Tax rate (percent)
Earnings relative to FPL (percent)
Median 90th percentile10th percentile
Conclusion
Compared to families living in poverty, families in the
struggling lower-middle class are more likely to be headed
by a married couple, to have a second adult worker, and to be
headed by an individual with some college education. ose
in the struggling lower-middle class still face many of the
same challenges as those in poverty, however, including food
insecurity and a reliance on government programs for income
support.
ere are programs in place to assist the struggling lower-
middle class. In fact, nearly one-third of these families rely on
at least one government transfer program for income support
in any given year. For both the struggling lower-middle class
and families living in poverty, the Supplemental Nutritional
Assistance Program (SNAP) is by far the most prevalent
program. Low-income families benet from an array of tax
credits and transfer programs, such as the Earned Income Tax
Credit (EITC) and Medicaid. e phase-out of these programs
at near-poverty levels of income leads to high marginal tax
rates on low- to moderate-income families, however, lessening
the return to work and making economic security more
dicult for working families to achieve.
is policy paper presents a snapshot of America’s struggling
lower-middle-class families and highlights their challenges
with food insecurity and with barriers to work that are
inadvertently created through the tax and transfer system. An
important next step is to identify policies that can improve the
well-being of these families.
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the Measurement of Poverty.” Discussion Paper 2008-17,
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growthcharts/html_charts/bmiagerev.htm.
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Almond. 2012. “Long Run Impacts of Childhood Access to
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1. More than half of families in the United States earn
$60,000 or less per year.
Figure 1. Income Distributions for Working-Age Families
with Children Under 18
Sources: CPS 2012, March supplement; authors’ calculations.
Note: e sample consists of families, dened as a unit having
at least one child under age eighteen and a family head under
age sixty-ve. A family’s earned income is the sum of each
family member’s total pretax wage and salary income; pre-
income-tax nonfarm business and/or professional practice
income; and net pre-income-tax earnings as a tenant farmer,
sharecropper, or operator of the family’s own farm during the
previous calendar year. A family’s pretax, pretransfer income
is the sum of each family member’s earned income as well as
income from pension or retirement income from a previous
employer or union, or from other sources (excluding Social
Security and Veterans’ Administration payments); interest on
saving accounts, certicates of deposit, money market funds,
bonds, treasury notes, IRAs, and/or other investments that pay
interest; stocks and mutual funds; rent (aer expenses), charges
to roomers or boarders, and from money paid by estates, trusts,
and royalties; child support payments; alimony payments;
regular nancial assistance from friends or relatives not living
in the same household; and any pretax income that was not
reported in other, more-specic income variables (i.e., hobbies,
severance pay, and foster child care payments). Families with
negative income are included in the $0 earnings category.
2. Nearly half of families in the United States live
below 250 percent of the federal poverty level (FPL).
Figure 2. Income Distribution for Working-Age Families
with Children Under 18 Relative to the Federal Poverty
Level (FPL)
Sources: CPS 2012, March supplement; authors’ calculations.
Note: e sample consists of families, dened as a unit
having at least one child under age eighteen and a family
head under age sixty-ve. Families with negative income
are included in the 0–49 percent of the federal poverty level
(FPL) category. To determine a family’s position relative to the
FPL, we constructed each family’s income-to-poverty ratio
by dividing the CPS’ total income variable (the sum of each
family member’s total pretax personal income or losses from
all sources) by the Census Bureau’s poverty threshold for that
family. Using its income-to-poverty ratio, we then placed each
family into the corresponding income bin relative to the FPL.
3. Struggling lower-middle-class families are almost
equally headed by single parents and married couples.
Figure 3. Breakdown of Family Characteristics, by Income
Relative to the Federal Poverty Level (FPL)
Sources: CPS 2012, March supplement; authors’ calculations.
Note: e sample consists of families, dened as a unit having
at least one child under age eighteen and a family head under
age sixty-ve. A family is below 100 percent of the FPL if its
income-to-poverty ratio is below 1.0. (at ratio is constructed
by dividing the CPS’ total income variable by the ocial
poverty threshold used by the Census Bureau to evaluate the
poverty status of each family.) A family is between 100 and
250 percent of the FPL if its income-to-poverty ratio is greater
than or equal to 1.0 and less than or equal to 2.5. An earner is
dened as an individual who has earned income greater than
zero. Individuals are considered married if they are married
and their spouse is present, and single otherwise.
4. Nearly one out of two families in the struggling
lower-middle class is headed by an adult who has
attended college.
Figure 4. Highest Educational Attainment of Family Head,
by Income Relative to the Federal Poverty Level (FPL)
Sources: CPS 2012, March supplement; authors’ calculations.
Note: e sample consists of families, dened as a unit having
at least one child under age eighteen and a family head
under age sixty-ve. A family is below 100 percent of the
FPL if its income-to-poverty ratio is below 1.0. (at ratio is
constructed by dividing the CPS’ total income variable by the
Census Bureau’s corresponding poverty threshold.) A family
is between 100 and 250 percent of the FPL if its income-to-
poverty ratio is greater than or equal to 1.0 and less than or
equal to 2.5. A family is above 250 percent of the FPL if its
income-to-poverty ratio is greater than 2.5.
“Less than high school” indicates individuals who do not
have a high school diploma. “High school diploma” indicates
individuals who have a high school diploma or equivalent.
“Some college” indicates individuals who have an associate
degree (occupational/vocational or academic program) or
some college, but do not have a bachelor’s degree. “Bachelor’s
Technical Appendix
22
degree” indicates individuals who have a bachelor’s degree.
“More than college” indicates individuals who have a master’s
degree, professional school degree, or doctorate degree.
5. Nearly one-third of struggling lower-middle-class
families rely on income support from a government
program.
Figure 5. Percent of Working-Age Families Who Receive
Select Government Transfers, by Income Relative to the
Federal Poverty Level (FPL)
Sources: CPS 2012, March supplement; authors’ calculations.
Note: e sample consists of families, dened as a unit
having at least one child under age eighteen and a family
head under age sixty-ve. A family is below 100 percent of
the FPL if its income-to-poverty ratio is below 1.0. (at ratio
is constructed by dividing the CPS’ total income variable
by the ocial poverty threshold used by the Census Bureau
to evaluate the poverty status of each family.) A family is
between 100 and 250 percent of the FPL if its income-to-
poverty ratio is greater than or equal to 1.0 and less than or
equal to 2.5. A family receives Supplemental Security Income
(SSI), unemployment benets, welfare benets, disability
benets, or Supplemental Nutritional Assistance Program
(SNAP) benets if at least one of the family members had
income greater than zero from SSI, unemployment benets,
welfare benets, disability benets, or SNAP benets,
respectively. A family receives any of these transfers if it
receives income greater than zero from at least one of these
ve government programs.
6. Roughly 40 percent of children in the struggling
lower-middle class experience food insecurity or
obesity, or both.
Figure 6. Child Food Insecurity and Obesity Rates, by
Income Relative to the Federal Poverty Level (FPL)
Sources: CDC 2001, 2012; authors’ calculations.
Note: e sample consists of children ages twelve to
seventeen. A child is below 100 percent of the FPL if her
family’s income-to-poverty ratio is below 1.0. A child is
between 100 and 250 percent of the FPL if her family’s
income-to-poverty ratio is greater than or equal to 1.0 and
less than 2.5. A child is above 250 percent of the FPL if her
income-to-poverty ratio is greater than or equal to 2.5.
Following the U.S. Department of Agriculture’s (USDA)
denition, a child lives in a food-insecure household if her
household-level food security status is “low food security” or
“very low food security” (Coleman-Jensen, Nord, and Singh
2013). Children are considered food insecure if they live
in a household that has limited or uncertain availability of
nutritionally adequate and safe foods, or limited or uncertain
ability to acquire acceptable foods in socially acceptable ways
(USDA 2000). To measure a household’s food security status,
adults in the Current Population Survey (CPS) are asked a
series of questions ranging from questions about whether
they experienced worry that they would run out of money
for food; to whether an adult in the family has had to skip a
meal, go hungry, or go for a day without eating because there
was not enough money for food; to whether a child in the
family had to skip a meal, go hungry, or go for a day without
eating. If a household answers “yes” to none or very few of
the questions, it is considered to be food secure. Households
that answer “yes” to more of the questions are classied as
food insecure or as having very low food security (a more
severe designation) (Coleman-Jensen et al. 2013).
To determine a child’s obesity status, the average 95th
percentile body mass index (BMI) values for each age and
gender were calculated by averaging the monthly 95th
percentile BMI values for the respective age (in months) and
gender. We consider a child obese if that child’s BMI is greater
than the average 95th percentile BMI for the corresponding age
and gender.
7. More than one in ve children faces food insecurity
in thirty-seven states and the District of Columbia.
Figure 7. Child Food Insecurity Rates by State in 2011
Source: Feeding America 2013.
Note: Original data come from the 2011 Core Food Security
Module of the Current Population Survey. For more details,
see Gunderson et al. (2013). Following the USDA’s denition,
a child lives in a food-insecure household if her household-
level food security status is “low food security” or “very low
food security” (Coleman-Jensen et al. 2013). Children are
considered food insecure if they live in a household that has
limited or uncertain availability of nutritionally adequate
and safe foods or limited or uncertain ability to acquire
acceptable foods in socially acceptable ways (USDA 2000).
To measure a household’s food security status, adults in the
CPS are asked a series of questions ranging from questions
about whether they experienced worry that they would run
out of money for food; to whether an adult in the family has
had to skip a meal, go hungry, or go for a day without eating
because there was not enough money for food; to whether a
child in the family had to skip a meal, go hungry, or go for a
day without eating. If a household answers “yes” to none or
very few of the questions, it is considered to be food secure.
Households that answer “yes” to more of the questions are
classied as food insecure or as having very low food security
(a more severe designation) (Coleman-Jensen et al. 2013).
8. Nearly 90 percent of SNAP recipients live in a
household with at least one child, one disabled
individual, or one elderly individual.
Figure 8. Distribution of Participants Receiving
Supplemental Nutrition Assistance Program (SNAP)
Benets by Household Composition in 2011
Source: Strayer, Eslami, and Lein 2012.
Note: Original data come from the scal year 2011 SNAP
Quality Control sample.
9. America’s tax and transfer system expands the
middle class.
Figure 9. Income Distributions for Working-Age Families
with Children Under 18 Before and Aer Taxes
Sources: CPS 2012, March supplement; authors’ calculations.
Note: e sample consists of families, dened as a unit
having at least one child under age eighteen and a family
head under age sixty-ve.
A family’s pretax, pretransfer income is the sum of each
family member’s earned income as well as income from
pension or retirement income from a previous employer
or union, or from other sources (excluding Social Security
and Veterans’ Administration payments); interest on saving
accounts, certicates of deposit, money market funds,
bonds, treasury notes, IRAs, and/or other investments that
pay interest; stocks and mutual funds; rent (aer expenses),
charges to roomers or boarders, and from money paid
by estates, trusts, and royalties; child support payments;
alimony payments; regular nancial assistance from friends
or relatives not living in the same household; and any pretax
income that was not reported in other, more-specic income
variables (i.e., hobbies, severance pay, and foster child care
payments).
A family’s posttax and posttransfer income is the sum
of a family’s total income; the total value of food stamps
received by the household; the amount of federal and state
tax liability aer tax credits (including the additional Child
Tax Credit [CTC] and the Earned Income Tax Credit [EITC])
are deducted; the total Social Security retirement payroll
deductions for an individual or for a couple ling a joint tax
return; and the amount of annual property taxes that the
household paid during the previous calendar year.
Families with negative income are included in the $0 earnings
category. Following the U.S. Census Bureau (2011) denition,
median income (for both pretax, pretransfer income and
posttax, posttransfer income) is the income level that divides
the income distribution into two equal groups: half of
American families have income above that amount and half of
American families have income below that amount.
10. Struggling lower-middle-class families depend on
an array of tax and transfer benets.
Figure 10. Tax and Transfer Benets for a Single Parent
with Two Children by Household Earnings in 2008
Source: Maag et al. 2012.
Note: Reproduction of gure 1 from Maag et al. (2012). For
the purposes of this exercise, gure 10 does not include
the recovery rebate credit and the dependent exemption.
Health value estimates are based on Medicaid spending
and insurance premiums as reported by the Kaiser Family
Foundation. Coverage varies by source: Medicaid and
Children’s Health Insurance Program (CHIP) benets are
more comprehensive and have less cost-sharing than do those
in the health insurance exchange subsidies. Medicaid and
CHIP also pay providers at lower rates than private insurers
for services. A secondary horizontal axis representing the
FPL was added for further analysis, using original data
from Maag et al. 2012. e gray shaded area represents the
struggling lower-middle class, or households with earnings
between 100 and 250 percent of the FPL.
11. A low-income, single parent can face a marginal
tax rate as high as 95 percent.
Figure 11. Marginal Tax Rates under the System of Taxes
and Transfers for a Hypothetical Single Parent with One
Child by Household Earnings in 2012
Source: CBO 2012.
Note: Reproduction of fourth panel of gure 2 from CBO
(2012).
12. e highest marginal tax rates tend to fall on the
struggling lower-middle class.
Figure 12. Distribution of Marginal Tax Rates under 2012
Law, by Earnings Relative to the Federal Poverty Level
(FPL)
Source: CBO 2012.
Note: Reproduction of gure 5 from CBO (2012). e gray
shaded area represents the struggling lower-middle class,
or households with earnings between 100 and 250 percent of
the FPL.
24
Hamilton Project Papers on the
Struggling Lower-Middle Class
• “GivingSecondaryEarnersaTaxBreak:AProposaltoHelp
Low-andMiddle-IncomeFamilies”
Melissa S. Kearney and Lesley J. Turner propose a secondary-
earner deduction as a reform to the tax code that would help
secondary earners keep more of the money they earn and
increase the families’ take-home pay.
• “StrengtheningSNAPforaMoreFood-Secure,Healthy
America”
Diane Whitmore Schanzenbach proposes a series of targeted
reforms to the Supplemental Nutrition Assistance Program
(SNAP) to strengthen the program while still retaining its
fundamental role as a cornerstone of our nation’s social
safety net.
• “ImprovingtheMeasurementofPoverty”
Rebecca M. Blank and Mark H. Greenberg discuss the need for
a new national poverty measure that better reects the actual
economic conditions of low-income Americans.
• “GettingMorefromLow-IncomeHousingAssistance”
Edgar O. Olsen examines shortfalls with the current system of
low-income housing assistance and proposes a transition to an
entitlement housing assistance program that relies exclusively
on tenant-based assistance.
• “BetterWorkersforBetterJobs:ImprovingWorker
AdvancementintheLow-WageLaborMarket”
Harry J. Holzer proposes a new federal funding stream to
identify, expand, and replicate the most successful state and
local initiatives designed to spur the advancement of low-wage
workers in the United States.
• “Employment-BasedTaxCreditsforLow-SkilledWorkers”
John Karl Scholz proposes increasing the return to work for low-
income families through the expansion the earned income tax
credit for low-income childless taxpayers and the creation of a
targeted wage subsidy in certain economically depressed areas.
• “NewHope:FulllingAmerica’sPromiseto‘MakeWork
Pay’”
Johannes M. Bos, Greg J. Duncan, Lisa A. Gennetian, and
Heather D. Hill evaluate the New Hope program—designed
to assist workers by providing work supports including access
to quality child care and health insurance—and provide
recommendations for scaling it up nationally.
• “FundamentalRestructuringofUnemploymentInsurance:
Wage-LossInsuranceandTemporaryEarningsReplacement
Accounts”
Jerey R. Kling proposes to restructure social insurance aer
job loss in order to improve protection against long-term
eects of unemployment, provide more progressive allocation
of benets, reduce incentives for rms to lay o workers, and
encourage reemployment.
• “ReformingUnemploymentInsuranceforthe21stCentury
Workforce”
Lori G. Kletzer and Howard Rosen outlinethree broad reforms
to update the unemployment insurance system, which has not
been updated since 1935 and is in need of reform to meet the
needs of today’s workforce.
• “ImprovingOpportunitiesandIncentivesforSavingby
Middle-andLow-IncomeHouseholds”
William G. Gale, Jonathan Gruber, and Peter Orszag propose
changing the default features of retirement savings and
creating new matching programs to incentivize people to save.
Advisory CounCil
GEORGE A. AKERLOF
Koshland Professor of Economics
University of California, Berkeley
ROGER C. ALTMAN
Founder & Executive Chairman
Evercore
ALAN S. BLINDER
Gordon S. Rentschler Memorial Professor
of Economics & Public Affairs
Princeton University
TIMOTHY C. COLLINS
Senior Managing Director
& Chief Executive Officer
Ripplewood Holdings, LLC
JONATHAN COSLET
Senior Partner & Chief Investment Officer
TPG Capital, L.P.
ROBERT CUMBY
Professor of Economics
Georgetown University
JOHN DEUTCH
Institute Professor
Massachusetts Institute of Technology
CHRISTOPHER EDLEY, JR.
Dean and Professor, Boalt School of Law
University of California, Berkeley
BLAIR W. EFFRON
Founding Partner
Centerview Partners LLC
JUDY FEDER
Professor & Former Dean
Georgetown Public Policy Institute
Georgetown University
ROLAND FRYER
Robert M. Beren Professor of Economics
Harvard University
CEO, EdLabs
MARK T. GALLOGLY
Cofounder & Managing Principal
Centerbridge Partners
TED GAYER
Vice President & Director
of Economic Studies
The Brookings Institution
TIMOTHY GEITHNER
RICHARD GEPHARDT
President & Chief Executive Officer
Gephardt Group Government Affairs
ROBERT GREENSTEIN
President
Center on Budget and Policy Priorities
MICHAEL GREENSTONE
3M Professor of Environmental Economics
Massachusetts Institute of Technology
GLENN H. HUTCHINS
Co-Founder
Silver Lake
JIM JOHNSON
Chairman
Johnson Capital Partners
LAWRENCE F. KATZ
Elisabeth Allison Professor of Economics
Harvard University
MARK MCKINNON
Former Advisor to George W. Bush
Co-Founder, No Labels
ERIC MINDICH
Chief Executive Officer
Eton Park Capital Management
SUZANNE NORA JOHNSON
Former Vice Chairman
Goldman Sachs Group, Inc.
PETER ORSZAG
Vice Chairman of Global Banking
Citigroup, Inc.
RICHARD PERRY
Managing Partner & Chief Executive Officer
Perry Capital
MEEGHAN PRUNTY EDELSTEIN
Senior Advisor
The Hamilton Project
ROBERT D. REISCHAUER
Distinguished Institute Fellow and
President Emeritus
The Urban Institute
ALICE M. RIVLIN
Senior Fellow, The Brookings Institution
Professor of Public Policy
Georgetown University
DAVID M. RUBENSTEIN
Co-Founder & Co-Chief Executive Officer
The Carlyle Group
ROBERT E. RUBIN
Co-Chair, Council on Foreign Relations
Former U.S. Treasury Secretary
LESLIE B. SAMUELS
Senior Counsel
Cleary Gottlieb Steen & Hamilton LLP
SHERYL SANDBERG
Chief Operating Officer
Facebook
RALPH L. SCHLOSSTEIN
President & Chief Executive Officer
Evercore
ERIC SCHMIDT
Executive Chairman
Google Inc.
ERIC SCHWARTZ
76 West Holdings
THOMAS F. STEYER
Business Leader & Investor
LAWRENCE SUMMERS
Charles W. Eliot University Professor
Harvard University
PETER THIEL
Technology Entrepreneur, Investor,
and Philanthropist
LAURA D’ANDREA TYSON
S.K. and Angela Chan Professor of Global
Management, Haas School of Business
University of California, Berkeley
MELISSA S. KEARNEY
Director
WWW.HAMILTONPROJECT.ORG
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1775 Massachusetts Ave., NW
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Printed on recycled paper.
A Dozen Facts about America’s Struggling Lower-Middle Class
7.
8.
9.
11 .
12 .
10.
1.
2.
3.
4.
5.
6.
More than half of families in the United States earn
$60,000 or less per year.
Nearly half of families in the United States live below 250
percent of the federal poverty level.
Struggling lower-middle-class families are almost equally
headed by single parents and married couples.
Nearly one out of two families in the struggling lower-
middle class is headed by an adult who has attended
college.
Nearly one-third of struggling lower-middle-class families
rely on income support from a government program.
Roughly 40 percent of children in the struggling lower-
middle class experience food insecurity or obesity, or both.
More than one in ve children faces food insecurity in
thirty-seven states and the District of Columbia.
Nearly 90 percent of Supplemental Nutritional Assistance
Program (SNAP) recipients live in a household with at least
one child, one disabled individual, or one elderly individual.
America’s tax and transfer system expands the middle
class.
Struggling lower-middle-class families depend on an array
of tax and transfer benets.
A low-income, single parent can face a marginal tax rate
as high as 95 percent.
The highest marginal tax rates tend to fall on the
struggling lower-middle class.
Income Distributions for Working-Age Families with Children Under 18
More than half of families in the United States earn $60,000 or less per year, and about three-fourths earn $100,000 or less.
Sources: CPS 2012, March supplement; authors’ calculations.
Note: A family is defined as a unit having at least one child under age eighteen and a family head under age sixty-five. A family’s earned income is the sum of each family member’s total pretax wage and
salary income. Pretax, pretransfer income is the sum of earned income and additional sources of nontransfer income (e.g., interest, dividends, or alimony). For more details, see the technical appendix.
0
5
10
15
20
25
0
20
40
60
80
100
10
30
50
70
90
Pretax, pretransfer incomeEarned Income
1–20,000
0
20,001–40,000
40,001–60,000
60,001–80,000
80,001–100,000
100,001–120,000
120,001–140,000
140,001–160,000
160,001–180,000
180,001–200,000
200,001–220,000
220,001–240,000
240,001–260,000
260,001 or more
Percent of families
Family income (in dollars)
Cumulative percent of families
54 percent of families earn $60,000 or less.
