The Cost of Thriving Has Fallen: Correcting and Rejecting the American Compass Cost-of-Thriving Index

Abstract

The Cost-of-Thriving Index (COTI), developed by American Compass Executive Director Oren Cass, asks whether families can afford a middle-class lifestyle. It compares the costs of five goods and services to the income of a typical full-time male earner. Cass concludes that the cost of thriving has increased dramatically, from 40 weeks of work in 1985 to 62 in 2022. Our improvements to Cass’s estimates indicate the cost of thriving rose by 10 weeks rather than 22. After accounting for the better quality of the goods and services he tracks, the increase was four weeks. The cost of thriving declines when we account for falling federal taxes or include all full-time workers. The after-tax cost of thriving for this broader group fell by 7.5 weeks. These improvements aside, we reject the COTI approach as inadequate for assessing changes in living standards. While Cass’s estimates imply that male earnings have fallen by 36 percent relative to costs, conventional analyses indicate a rise of 19 percent, without accounting for taxes, and an increase of 34 percent after taxes. For the broader group including all full-time workers, the after-tax increase was 53 percent.

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Introduction

Can US families still afford a middle-class lifestyle? The Cost-of-Thriving Index (COTI), developed by American Compass Executive Director Oren Cass, is an attempt to answer that question (Cass 2023). Specifically, COTI asks whether a male earner’s paycheck can afford the same five middle-class goods and services that it could pur­chase in 1985.

For 2022, Cass’s answer to that question is a strong “no”: It would take more weeks than there are in a year for the median man to afford the basic middle-class goods and services: groceries, a home, health insurance, an automobile, and a college education for his children. In 1985, these items were in reach for a male earner work­ing roughly 40 weeks according to COTI. In Cass’s telling of the subsequent history, it would have taken 62 weeks to purchase these items in 2022, which is problematic considering there are only 52 weeks in a year.

In this report, we object to Cass’s numbers on both empirical and theoretical grounds. We find that Cass overstates the increase in all these costs—and dramat­ically so for some of them. Making appropriate adjust­ments to Cass’s figures, we find that it has become easier for a male earner to support a family than it was in 1985.

We correct the dollar costs of the COTI components when there are obvious errors (as is the case for health insur­ance costs), use better data when we can find them (as for higher education costs), and correct conceptual problems in defining costs (as with homeowners’ costs of housing).

We find that instead of rising by 22 weeks of work, the cost of thriving (for male workers) rose by just over 10 weeks.

This improved estimate overstates the increase in COTI, however. Cass’s way of measuring “costs” fails to account for quality improvement in the items he tracks—particularly better health care and nicer cars. According to our preferred estimates, the cost of thriving rose by less than four weeks of work.

It is likely that even our preferred estimate overstates the increase in housing, health care, and education costs by failing to account fully for quality improvements. The ideal estimates would probably erase that four-week increase.

Furthermore, COTI does not take into account taxes— a major flaw. Taxes can be a major cost for many families when considering their ability to thrive, so including them is important. But it’s especially important in this case because the kind of family Cass is describing has seen a major reduction in its federal tax burden since 1985, going from a net taxpayer to receiving a subsidy, primar­ily due to the child tax credit (CTC). After including esti­mates of the federal tax burden or tax subsidy in both years, we find that the 2022 cost of thriving for a family with one male earner is lower than it was in 1985.

When we include younger full-time workers excluded by Cass and full-time female workers, COTI falls by nearly one week before accounting for taxes and by 7.5 weeks after taking them into account.

Moreover, assessing changes in family affordability in this way, no matter how carefully done, hides improve­ment over time. While Cass objects to standard inflation adjustment of earnings as a way to assess changes in the cost of living, his position reflects a basic misunderstand­ing about the methodology involved. Inflation adjust­ment is a more accurate way of assessing changes in living standards than is Cass’s approach. While Cass’s estimates suggest that the purchasing power of the median man’s earnings fell by 36 percent, and our corrections indicate an increase of 4 percent after accounting for taxes, con­ventional inflation adjustment shows that earnings actu­ally rose by 19 percent before taxes and 34 percent after taxes. Adding women and younger workers, the pretax increase is 33 percent, and the posttax increase is 53 per­cent. (Figure 1 summarizes the various estimates of the change in purchasing power presented below.)

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References

Cass, Oren. 2023. “The 2023 Cost-of-Thriving Index.” American Compass. February. https://americancompass.org/wp-content/uploads/2023/02/COTI_2023_Final.pdf.