November 13, 2007

Treasury’s Income Mobility Report Blows Away ‘Mediocre Bush Economy’ and Other Myths

I see that the Treasury Department has updated my related post (“Income Inequality + Economic Mobility = Long-Term Prosperity”) from a couple of years ago. :–>

In all seriousness, it’s hard to overstate the importance of today’s report (“Income Mobility in the U.S. from 1996 to 2005″; press release; full study PDF). That’s because it provides documented evidence of more, not less, economic mobility than in previous eras. Beyond that, taken in combination with an independent report I covered last week, it demonstrates beyond any reasonable doubt that the first four-plus years of the Bush economy were exceptional.

Tuesday’s read-the-whole-thing feature editorial at OpinionJournal.com provides a great overview (bolds are mine), plus some tantalizing details:

….. you may have heard that the U.S. is becoming a nation of rising inequality and shrinking opportunity. We’d refer those campaigns to a new study of income mobility by the Treasury Department that exposes those claims as so much populist hokum.

….. (The study shows) beyond doubt that the U.S. remains a dynamic society marked by rapid and mostly upward income mobility. Much as they always have, Americans on the bottom rungs of the economic ladder continue to climb into the middle and sometimes upper classes in remarkably short periods of time.

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.

….. 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.

….. 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.

The study is also valuable because it shows that income mobility remains little changed from what similar studies found in the 1970s and 1980s.

….. The political left and its media echoes are promoting the inequality story as a way to justify a huge tax increase. But inequality is only a problem if it reflects stagnant opportunity and a society stratified by more or less permanent income differences. That kind of society can breed class resentments and unrest. America isn’t remotely such a society, thanks in large part to the incentives that exist for risk-taking and wealth creation.

….. As the Treasury data show, we shouldn’t worry about inequality. We should worry about the people who use inequality as a political club to promote policies that reduce opportunity.

The impressive mobility and income statistics in the report collectively remind us of three points that Old Media and too many politicians want us to forget:

  • First, that those on the bottom rungs of the economic ladder typically don’t stay there very long, i.e., being irretrievably “stuck in poverty” is largely a myth.
  • Second, since the poor are not the same people from year to year, and since the poor who replace the ones who just moved up are either new workforce entrants or people who have fallen from greater heights, it’s likely that they too will make or remake their way up the economic ladder in a relatively short period of time.
  • Third, the rich are also not the same people from year to year. To the extent that they still exist, high punitive tax rates single out different people each year, “rewarding” their newfound success with confiscatory tax bills.

The 24% real income increase cited by the Journal should relegate the “stagnant incomes” myth to the economic waste heap once and for all (but it won’t).

Today’s Treasury study also provides a great deal of satisfaction when compared to similar data for the years 1987-1996. Just look at these two charts:

Mobility1996to2005and1987to1996

(Sources: “Income Mobility in the U.S. from 1996 to 2005,” issued Nov. 13, 2007; “Income Mobility in the U.S.: evidence from Income Tax Returnsfor 1987 and 1996,” issued May 2007)

Here are the salient points:

  • Every base-year income group in 1996, with the exception of the lowest quintile and by a relatively insignificant amount, made greater progress during the subsequent nine years than did their 1987 counterparts.
  • The median income gains during the most recent nine years studied were over double the gains seen in the nine years before that (24.2% vs. 11.1%).
  • The average American has made far more economic progress during the past 9 years than he or she did during the nine years before that.

Oh, and there’s one more question to address: Is it possible to estimate whether most of the remarkable progress during the past 9 years occurred in the earlier Clinton years or the later Bush 43 years?

Yes it is.

Last week, the Conference Board (“about” page here) released a study on discretionary income that was covered by yours truly (NewsBusters; BizzyBlog). That study and a previous comparable version reported that the following percentages of American households had discretionary income (technically, “those whose spendable income exceeds that held by households with similar demographic features”) in various recent years:

– 1997/1998 – 52%
– 2002 – 52.1%
– 2003/2004 – 51%
– 2006 – 63.5%

Though the years involved don’t align perfectly, the fact that the entire percentage increase in households with discretionary income has taken place in the last few years makes it reasonable to conclude that most, and perhaps all, of the income mobility that occurred from 1996-2005 (the years in the Treasury study) took place in the final few years. Certainly no one can credibly claim that the majority of the mobility improvement occurred before 2002. Further, though things can certainly change quickly in this volatile world, broad economic statistics reported since the Treasury study give us no good reason to believe that things have changed for the worse since.

Treasury’s mobility study, combined with The Conference Board’s discretionary income data, shatter yet another myth. It’s a myth Old Media propagates and will continue to propagate day-in and day-out, despite the overwhelming evidence just cited: That, as far as the average American is concerned, the Bush 43 economy has been mediocre, nothing special, or worse, and that it has paled in comparison to the Golden Era of the 1990s.

Now you know better.

Cross-posted at NewsBusters.org.

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3 Comments

  1. [...] It’s not victory – not yet – but every day it seems we get a little closer to victory. These might be called little hopeful signs – little victories. People are starting to realize that the surge is working, but they’re figuring it out almost by accident. If the press cannot recognize and report on these little victories, how will they recognize, or be able to credibly report on the big ones? And why shouldn’t they want to? Why should the press not want to cover good news from Iraq? Unfortunately, it is still true that until a new president is installed in the WH, preferably one with a D after the name, only the downsides are newsworthy, and that holds true in every subject. Every subject. My elderly family members are convinced that everything, everywhere, is going to hell, and they are fretful and terrified. They think everyone is out of work, the economy is in a recession, the war in Iraq is lost and there are no real terrorist threats – that’s just made-up stuff. They’re sure America is dying. They are sure the world is headed for famine. They are depressed and do not want to send out Christmas cards, because how can you do that when so much is bad in the world? [...]

    Pingback by The Anchoress » Blog Archive » Good news leaks past the embargo on good news… — November 16, 2007 @ 6:51 pm

  2. [...] Unfortunately, it is still true that until a new president is installed in the WH, preferably one with a D after the name, only the downsides are newsworthy, and that holds true in every subject. Every subject. My elderly family members are convinced that everything, everywhere, is going to hell, and they are fretful and terrified. They think everyone is out of work, the economy is in a recession, the war in Iraq is lost and there are no real terrorist threats – that’s just made-up stuff. They’re sure America is dying. They are sure the world is headed for famine. They are depressed and do not want to send out Christmas cards, because how can you do that when so much is bad in the world? [...]

    Pingback by Media Mythbusters Blog » Blog Archive » Good news leaks past the embargo on good news… — November 16, 2007 @ 8:08 pm

  3. [...] A few days ago, The Anchoress wrote about the press’ gloom and doom: Unfortunately, it is still true that until a new president is installed in the WH, preferably one with a D after the name, only the downsides are newsworthy, and that holds true in every subject. Every subject. My elderly family members are convinced that everything, everywhere, is going to hell, and they are fretful and terrified. They think everyone is out of work, the economy is in a recession, the war in Iraq is lost and there are no real terrorist threats – that’s just made-up stuff. They’re sure America is dying. They are sure the world is headed for famine. They are depressed and do not want to send out Christmas cards, because how can you do that when so much is bad in the world? [...]

    Pingback by Shouldn’t Every Day be Thanksgiving? « Obi’s Sister — November 19, 2007 @ 10:53 am

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