Wednesday, June 30, 2010

The Rich Get Poorer

Liberals often claim that only the rich are getting richer--that is, that wealth increasingly is concentrated among the top 1 percent of earners. This is wrong, for several reasons: it presumes income is a zero-sum game, it ignores data on consumption, it compares "bounded" with "unbounded" brackets, it confuses persons with statistical categories and -- relatedly -- ignores income mobility.

Further confirmation comes in a recent report by the Tax Foundation. Looking at tax returns, it found (page 5) that almost 60 percent of taxpayers in the lowest income quintile in 1999 had moved to a higher quintile by 2007 (over 30 percent jumped two or more quintiles). (Previous Census Bureau analysis showed that only 13 percent of those below the poverty line (roughly the lowest decile) remained poor after two years.) Conversely, only about half of taxpayers who were millionaires at some point during that interval remained millionaires for more than one year:

source: Tax Foundation SR-180 at 6

In other words, being a millionaire is transitory. (Plus there's fewer millionaires than there used to be.) So, it's not like the super-rich are a static strata forever feasting off the poor. Rather, the top 1 percent (or 10 percent) are not the same people year-to-year. In America, neither poor nor rich is permanent.

President Obama promised fiscal discipline. But Peter Pappas at Tax Lawyer's Blog predicts increased "soak the rich" rhetoric. I suspect he's right--because class warriors employ fuzzy math. As Thomas Sowell recently observed:
What happens to the income of the category over time is not the same as what happens to the people who were in that category at any given point in time. But many among the intelligentsia are ready to seize upon any numbers that seem to fit their vision.
(via Carpe Diem)


Anonymous said...

In a great article in 1997, Thomas Sowell wrote,

Most of the people who are called "the rich" more accurately could be called middle aged or elderly. They are not a class. They are an age bracket. When they were younger, they usually were in a lower-income bracket.

Carl said...

Great quote, anony; thanks!