Middle class? What middle class?

The buzz around the mythical water coolers of the nation (has anyone actually gathered to talk around a water cooler?) is about to grow over Statistics Canada's latest report on household income.

There's absolutely nothing in the report that everyone doesn't already know, but the numbers will give our water-drinking debaters a good conversation opener.

The upshot? The rich are getting richer, the poor are doing slightly better — and the middle class is stalled and slipping backward.

Looking out our own windows, it may be harder to see the negative changes in the way incomes were distributed over the last 20 years or so. Outside of Toronto, Alberta has the highest proportion of wealthy people in the nation. We're doing great in Alberta, so people tend ignore news that doesn't fit their daily experience.

But in the wider view, Canadians who are not earning above $135,000 a year (average income of the top 10 per cent of wage earners) or $381,000 (average income for the top one per cent) are feeling the pinch.

When all the incomes of all Canadians are ranked in some federal statistician's algorithm, the middle of the middle of middle class is an income of $50,000 a year, before taxes. How do you rank there, fellow water-drinker?

But if you take the one-percenters out of the equation, half of Canadian workers earn more than $28,000 a year. Half earn less.

This is taken from the StasCan National Household Survey, using numbers from 2010 (latest figures available), in a study that the federal agency itself warns we should take with a grain of salt.

Their survey was voluntary, they say, and there could be gaps in the data. Big gaps. As in: people on the lowest income levels and immigrants tended not to participate.

This tells us that inequalities in income distribution may be even greater than reported, because we don't have all the data from the bottom percentiles.

But as we stand, glass of water in hand, people will ask: what's the problem?

In terms of our total economy — especially from Saskatchewan west — there is no problem.

In fact, this and other studies show that fewer Canadians today qualify for low-income cutoff supports than at any time since 1996. So, if we're doing a better job supporting the bottom, does it really matter how rich the rich get?

For a full answer, you'd have to ask the middle. Average real, inflation-adjusted, after-tax incomes for the middle group dropped from $42,000 a year in 1976, to $36,000 in 1996, rising just two per cent from 1996 to 2010. That's a whole lot of disposable cash lost.

But even that is not the full picture, or the full problem. Canadians earn what Canadians earn, and individually, the vast majority of us find a way to cope.

The problem is for government.

Government spending always rises. Revenues from taxes does not. The majority will always demand we tax the rich — but we forget we already do. And there is a limit to how much we can tax these guys (they're mostly males) without hurting the economy.

We can do our best to support the bottom — and we do as well as anyone at that. So well, in fact, that there are disincentives for people to graduate from lower incomes to middle class.

That's because when you pass a certain point, you lose government supports for the poor. If you get a good raise in income, income tax, plus the loss of supports results in higher deductions than the one-percenters would pay, if they got a similar raise.

That's why the wealth of a healthy nation needs to be held more in the middle. A dynamic middle, with lots of people moving in and moving up, provides governments with the revenue they need for their sacred spending programs.

But we already know the middle class is becoming a hollow shell.

This week, class-conscious Britain actually began a national debate on a new definition of what constitutes “middle class.” So many Britons think they are middle-class (and act as if they were, but can't afford it) that the self-delusion is driving up housing prices and with it, personal debt.

The British majority is no longer middle class; they are “working class,” which should represent a step down in expectations of lifestyle. Working Britons do not save their money (interest rates on savings are a farce), and they spend everything trying to look more prosperous than they really are.

Does that look familiar to us in Canada? Mass delusion is not the basis of a healthy economy. Neither, I would suggest, is an extreme disparity of income, relative to value of labour.

Our society hasn't the first clue on how to change the trend of growing disparity of income. Perhaps the survival strategy for us water-drinkers is to simply downgrade our expectations.