A Double Squeeze on the Middle Class

This paper examines how consumer debt impacts middle-class households. Interest payments on this debt reduce spendable income and household living standards. We argue that it is necessary to account for interest payments on consumer debt when measuring income inequality and the size of the middle class, and then estimate the impact of doing this using the Survey of Consumer Finances datasets since the 1980s. We find that both greater income inequality and rising interest payments on past debt are squeezing the middle class, with interest becoming more important in the 2000s. We conclude with some policy proposals to aid middle-class households.