Wisconsin’s Shrinking Middle Class
No state has seen a bigger decline in the percent of middle class households than Wisconsin, new data shows.
It was not long ago that Wisconsin was a leading state in the size of its middle class. “In 2000, only one state – Utah – had a bigger middle class than Wisconsin,” the non-profit Wisconsin Budget Project notes. “But by 2013, eight states had larger middle classes than Wisconsin, including the nearby states of Iowa and Nebraska.”
This change happened in just 13 years, and is documented in a new analysis by the Pew Charitable Trusts, which shows that no state in America saw its middle class decline more than Wisconsin from 2000-2013. All 50 states and the District of Columbia saw a reduction in the percent of households that are middle class during this period, ranging from Wyoming with just a 0.3 percent decrease to Wisconsin, with a 5.6 percent decrease. Only three other states saw a decline of at least 5 percent in middle class households: Ohio (5.2 percent), North Dakota (5.1 percent) and Vermont (5.0 percent).
Pew defined middle-class households as those making between 67 percent and 200 percent of the state’s median income (in Wisconsin this included households earning $34,000 to $103,000), and found this group shrinking across the nation. “In most states, the growing percentage of households paying 30% (the federal standard for housing affordability) or more of their income on housing illustrates that it is increasingly difficult for many American families to make ends meet.”
As the Wisconsin Budget Project notes, this 5.6 percent decline means that one of 10 middle class households left the middle class during this period. “That translates to a drop of about 220,000 households in Wisconsin’s middle class,” writes researcher Tamarine Cornelius.
All of which represents a dramatic change for a state that long had a very strong middle class. “Between 2000 and 2013, the income for a typical Wisconsin household fell by $8,900,” the group notes, and “only four states had larger declines…. Wisconsin’s rank for median household income fell from 18th to 24th.”
The Pew analysis comes on the heels of a joint study of the wealth gap in Wisconsin by the Wisconsin Budget Project and the Center on Wisconsin Strategy, calling “Pulling Apart,” and released in late January. These numbers were even more stunning. The study found that as of 2012, 18.2 percent of all income in Wisconsin went to the wealthiest one percent in the state, up from 1974, when they got just 7.0 percent of all income.
Between 1979 and 2012, the study found, the average income of the top 1 percent in Wisconsin grew by 149 percent while the average income of the remaining 99 percent of the state grew by only 1 percent. This has become a state where the middle class is stagnant in income and declining in numbers.
But Wisconsin and the entire nation has become a fantastic place for the wealthy. The average income of the top 1 percent in this state is now 22.1 times higher than the average income of the other 99 percent in Wisconsin, the analysis in “Pulling Apart” found. This state’s wealth gap is now much greater than in the Midwest, where the one percent earned 19.7 times more than the other 99 percent.
And the wealth gap becomes stratospheric when you look at the top .01 percent, whose average income of just under $22 million is 499 times higher than the average income of the bottom 99 percent in Wisconsin.
These changes are happening nationally, but as the Pew analysis suggests, they have had the worst impact on Wisconsin since 2000. A Democratic governor, Jim Doyle, served for eight of these 13 years, with Republican governors before (Tommy Thompson, Scott McCallum) and after (Scott Walker). All have had problems dealing with the continuing impact of the decline of manufacturing in a state that has long ranked first or second (to Indiana) in the percent of its economy devoted to manufacturing. Wisconsin has trailed the nation in job growth in most years since 2000.
Less manufacturing has also meant less unionized jobs, which hollows out the middle class. As Cornelius notes, “Unionized workers earn more in wages and other compensation than non-union workers who are otherwise the same, and the higher wages help push additional households into the middle class.” And Wisconsin has been a leader in the decline of union workers. “In 2000, 17.8% of Wisconsin workers belonged to a union, dropping to 12.3% in 2013,” she notes. “Only five other states had bigger percentage-point declines, and Wisconsin’s ranking has dropped to 19th in 2013, down from 10th in 2000.”
Of course that decline was also attributable to the massive impact of Act 10, whose elimination of collective bargaining rights for nearly all public employees slashed the number of union members. The recent passage of the Right-to-Work will lead to a further decline, this time in private sector union members.
Walker and the Republicans have promoted such changes as helping the middle class. Act 10 has saved taxpayers $3 billion since it was enacted, but “a majority of state and local savings were due to state employees contributing half of their pension contributions and a minimum of 12.6 percent of their health insurance premiums,” as the conservative MacIver Institute has trumpeted.
“Like most reductions in income tax rates the benefits of this change were heavily skewed towards wealthier taxpayers,” Thompson noted, with the top 20 percent of Wisconsin taxpayers receiving about 43 percent of the total tax cut. “Thus, the combination of Act 10 and the income tax changes resulted in a substantial upward redistribution of income from a group of predominantly middle income people to very wealthy people, thereby increasing income inequality.”
Defenders of this have suggested that any across-the-board cut in the progressive income tax would naturally skew upwards. But as Thompson notes, Walker could have chosen a tax credit that applies equally to everyone. The state levies a basket of taxes which provides policy makers with a range of choices they might make.
For instance, Walker’s cuts in the Homestead Tax Credit and Earned Income Tax Credit resulted in low-income individuals and families paying $170 million more in taxes. This, too, is another policy choice which has significantly lowered income for those below the middle class. The latest decision to end food assistance for people working less than 20 hours a week will further shred the safety net for low-income people. The policy choices of Walker and the Republicans amount to Robin Hood in reverse, taking from the poor and the middle class to help the wealthy.