The Tax Foundation recently published a study which apparently seeks to comfort those of us who are concerned about the concentration of income in the US -- what they call "the rising gap between the rich and poor." It suggests that "snapshots of income inequality" should be considered in light of "the mobility of people up and down the income ladder."
The first graph is from Piketty and Saez, and shows the percentage of income going to the top 1% of income recipients. It shows the 1980 share as 10% and the 2007 share approaching 23.5%. The text mentions that the share of income received by the top 10% has risen from 34.6% in 1980 to 49.7% in 2007, also sourced to P&S.
The paper then goes on to show, from IRS data, the extent to which people moved from one income quintile to another between 1999 and 2007:
|Table 1 More than 50 Percent of Taxpayers Moved Out of the Bottom Quintile Between 1999 and 2007|
|2007 Income Quintile/Percentile|
|1999 Income |
|Lowest||Second||Third||Fourth||Fifth||Total||Top 10%||Top 5%||Top 1%|
|Note: Computations by author from the 1999-2007 SOI Individual Tax Panel.|
They cite the good news that only 43% of those in the bottom income quintile in 1999 remained in that quintile in 2007. A similar percentage of those who were in the top 1% in 1999 were again in the top 1% in 2007. Less than 10% of the 1999 Top 1%'ers had fallen out of the top quintile 8 years later. It was far more likely that a top-quintile taxpayer would remain in the top quintile -- 62% -- than anyone else remain where they were.
(Might I be forgiven for wishing that the study showed what percentage of income over the 9 years went to the people in each quantile in 1999, and then again for each quantile in 2007? One might come away with a different understanding.)
The remaining tables/figures show, for three different measures of income, how many taxpayers were "millionaires" for 1, 2, 3, 4, 5, 6, 7, 8 or all 9 years. (The appendix shows that the top 1% began at $339,600 in 1999, and $549,200 in 2007.)
Working with Gross Income, 675,000 tax payers had income over $1,000,000 during at least one year between 1999 and 2007. Of those, half were in that category for just one year, and only 6% -- 38,000 taxpayers -- were in the $1,000,000+ category for all 9 years. This is apparently intended to demonstrate that many more of us have one fabulous year than have consistent reported income at that level, and that this must mean that there is opportunity for all.
Narrowing the definition of income to exclude capital gains, a similar table shows that 431,000 taxpayers fell into the $1,000,000+ category at least once, of whom 175,000 were only once. So 36% of those who were "income millionaires" by the Gross Income definition were not "IM's" when capital gains were excluded.
Excluding (instead) "Business Income," the ever-an-income-millionaire universe drops to 555,000 taxpayers, and 55% of them were one-year-only income millionaires.
It would be interesting to see the aggregate income during the 9 years for each group. The author clearly has the data.
|Appendix B Persistence/Transience of Millionaires:
Data Underlying Figures 2, 3 and 4
|Number of Years a Millionaire|
|Gross Income Excluding Capital Gains|
|Gross Income Excluding Business Income|
|Source: Computations by author from the 1999-2007 SOI Individual Tax Panel.|
I suppose their conclusion is that since so many more people have one year of $1,000,000+ income than have 9 years of it, we ought not to worry about the actual distribution of income, which, as I've previously reported, is as follows:
|Top income decile:||47.19% of the before-tax income|
|Second income decile:||13.77% of the before-tax income|
||60.96% of the before-tax income|
|Second highest income quintile:||18.18% of the before-tax income|
|Middle income quintile:||11.23% of the before-tax income|
highest income quintile:
||6.72% of the before-tax income|
||2.92% of the before-tax income|
[Source: SCF Chartbook, page 7 and my calculations]
Moving from the bottom quintile to the fourth highest quintile may be considered mobility by the Tax Foundation. But when the top quintile receives 61% of the income, and 62% of those who were in the top quintile in 1999 are again in it in 2007, even a lot of mobility doesn't get one very far, in terms of economic security or return on one's labor.
Look at it this way:
- 67.6% of those in the lowest quintile in 1999 are still in the bottom 40% in 2007
- Of those in the second quintile in 1999, 66.9% are still in the bottom 40% in 2007. More have moved down a quintile than have moved up a quintile (and almost as many have moved down as have moved up in total: 32.2% down, 33.1% up).
- Of those in the middle quintile in 1999, more have fallen into the bottom 40% than have moved into the top 40% in 2009
- Of those in the fourth quintile in 1999, only 56% are in the top 40% in 2007. More have moved down a quintile than have moved up a quintile (25.7% vs 18.3%).
- Of those in the top quintile in 1999, 85.8% are in the top 40% in 2007
- Of those in the top 10% in 1999, only 23% are in the bottom 80% in 2007
- Of those in the top 5% in 1999, only 15% are in the bottom 80% in 2007
- Of those in the top 1% in 1999, only 10% are in the bottom 80% in 2007.
This is structural. We have permitted the creation and maintenance of income- and wealth-funneling machines.
You can read more about the nature of the machine, and how to harness it to make things better, in Henry George's books, including Progress and Poverty, and Social Problems (the latter is a book of essays, and the link will take you to some material which will help you choose one of interest). Certain things in society rightly belong to all of us, and our failure to treat them accordingly is at the root of our income- and wealth concentration problems (and many others, including sprawl, joblessness, boom-bust cycles, pollution -- and I think most of us would be happy to see that there is a solution to any one of these, much less something that will lead to a solution of all of them).
Income mobility in a society where so few of us control so much is a salable proposition only to the gullible. If every one of us could spend 3 months of our lives in the top 0.25% of income recipients, then maybe our top-20%-gets-61%, top-1%-gets-23% might be consistent with our ideals of equal liberty. Maybe, kinda sorta.
Tax Foundation, look into the wisdom of Henry George. Unless, of course, your funders' interests are not the interests of ordinary Americans.