RSS 2.0 FeedNew Report Debunks Populist Propaganda
by Stephen Littau“The rich are getting richer and the poor are getting poorer;” a refrain touted by populist propagandists perhaps as old as civilization itself. Lou Dobbs tells us on a daily basis about the so-called “war on the middle class.” Ralph Nader, Hillary Clinton, Barack Obama, John Edwards, Mike Huckabee and many others with the help of the MSM continue to use class warfare rhetoric as an argument for government to do something about what they see as unjust income inequality. It just seems unfair to some that some achieve a little while others achieve more.
Setting aside my objection to the notion that it’s the government’s job to steal from achievers and give the plunder to others distribute wealth for a moment, maybe its time to debunk this idea that the rich stay rich while the poor stay poor. Today’s Wall Street Journal editorial explores a recent study by the Treasury Department which found that this in fact is not the case (my emphasis):
The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.
Also encouraging is the fact that the after-inflation median income of all tax filers increased by an impressive 24% over the same period. Two of every three workers had a real income gain–which contradicts the Huckabee-Edwards-Lou Dobbs spin about stagnant incomes. This is even more impressive when you consider that “median” income and wage numbers are often skewed downward because the U.S. has had a huge influx of young workers and immigrants in the last 20 years. They start their work years with low wages, dragging down the averages.
Those who start at the bottom but hold full-time jobs nonetheless enjoyed steady income gains. The Treasury study found that those tax filers who were in the poorest income quintile in 1996 saw a near doubling of their incomes (90.5%) over the subsequent decade. Those in the highest quintile, on the other hand, saw only modest income gains (10%). The nearby table tells the story, which is that the poorer an individual or household was in 1996 the greater the percentage income gain after 10 years.
Okay, so the poor aren’t getting poorer. Surely, those rich bastards in the top 1% are also getting richer!
Only one income group experienced an absolute decline in real income–the richest 1% in 1996. Those households lost 25.8% of their income. Moreover, more than half (57.4%) of the richest 1% in 1996 had dropped to a lower income group by 2005. Some of these people might have been “rich” merely for one year, or perhaps for several, as they hit their peak earning years or had some capital gains windfall. Others may simply have not been able to keep up with new entrepreneurs and wealth creators.
Alright fine! The richest 1% aren’t getting richer and the poor aren’t getting poorer. So what’s the point?
The key point is that the study shows that income mobility in the U.S. works down as well as up–another sign that opportunity and merit continue to drive American success, not accidents of birth. The “rich” are not the same people over time.
Why do I have this sneaking suspicion that these findings will not be reported on Lou Dobbs or elsewhere in the MSM?
Hat Tip:Nealz Nuze
OK so, playing devil’s advocate here, but can’t a statist read this and say “See! Our policies are working”?
Comment by Bret — November 13, 2007 @ 12:25 pmOne of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
Those in the lowest quintile were probably college students. Take the college students out of the lowest quintile, and the data become much more depressing, I would think.
Comment by Joshua Holmes — November 13, 2007 @ 2:02 pmJosh,
Most college students don’t file their own income tax returns, right?
Comment by Bret — November 13, 2007 @ 3:13 pmJoshua:
I don’t happen to know the graduation rate of college students, but I suspect that most of that age group do not go to college or go to college and drop out.
Also, take this into consideration:
Two of every three workers had a real income gain…This is even more impressive when you consider that “median” income and wage numbers are often skewed downward because the U.S. has had a huge influx of young workers and immigrants in the last 20 years. They start their work years with low wages, dragging down the averages.
This influx of unskilled labor is bringing the averages down, yet still results in a net increase in upward mobility in the poorest group. What would the number look like if we took out the unskilled immigrants and college students? I don’t know the answer but I would expect that the remaining poor would have moved to the next step up on the ladder by an even higher percentage.
Any way you wish to slice it, this report suggests that their is a great deal of upward mobility even for the poorest among us. Most of this upward mobility has to do with individual choices.
Comment by Stephen Littau — November 13, 2007 @ 3:41 pmJosh,
The study deals with Americans age 25 and over. While some college students may still exist in that age range, I would state that it largely ignores the 18-23 year olds, who are often poor but from high-income families and are training to become high-income adults. I would assume that this group is who you’re alluding to when you reference college students, and this group is already controlled for in the data.
Comment by Brad Warbiany — November 13, 2007 @ 6:13 pmGood point, Brad. I hadn’t noticed that.
Comment by Joshua Holmes — November 13, 2007 @ 8:14 pmThe Treasury Report referred to is extremely poor in my opinion. It makes no adjustment for retirement from the higher income levels nor for the lower earners who mature over the 10 year period. It is also worded in some instances in ways that make it misleading when quoted. For example, the quote about the 24% gain for all tax filers is all tax filers in the study (which you would expect as they age). In a footnote, the report notes the average increase for all families in the US over the time period was closer to 5%. You can get additional details at my blog if you like.
Comment by Polecolaw — November 14, 2007 @ 7:58 pmhttp://www.polecolaw.blogspot.com