When people talk about the income gap between rich and poor, keep the following information in mind:
POOR GET RICHER, DESPITE CAMPAIGN RHETORIC
Thomas Sowell*
Among the many lies we can expect to hear this election year, none will be bigger or more often repeated than the lie that there is a widening income gap between the rich and the poor.
Why is that a lie, when there are so many statistics that seem to substantiate it?
There is no question that incomes in the top income brackets have risen both absolutely and relative to the bottom income brackets.
The joker is that millions of people move from one income bracket to another.
The even bigger joker is that taxpayers whose incomes were in the bottom 20 percent in 1996 had a 91 percent increase in incomes by 2005.
Meanwhile, taxpayers in the top one-hundredth of one percent – “the rich” or “superrich” – had their incomes drop 26 percent over those same years.
When millions of people’s incomes nearly double in a decade, many of them move up out of the bottom income bracket. Similarly, when other people who were at the top see their income drop by about one-fourth, many of them drop out of that bracket.
The statistics quoted above are from the Treasury Department, which has people’s income tax returns, so it is no problem for them to follow the same people over the years.
A previous Treasury Department study showed similar patterns in individual income changes between 1979 and 1988.
Moreover, a study conducted at the University of Michigan, following the same individuals over an even longer span of time, likewise found most people moving from income bracket to income bracket over time – especially among those who began in the bottom 20 percent.
The University of Michigan Panel Survey on Income Dynamics showed that, among people who were in the bottom 20 percent income bracket in 1975, only 5 percent were still in that category in 1991. Nearly six times as many of them were now in the top 20 percent in 1991.
There was a summary of the University of Michigan data in the 1995 annual report of the Federal Reserve Bank of Dallas, which also issued an excerpt titled “By Our Own Bootstraps.”
Among the intelligentsia, it is fashionable to sneer at income mobility as a “Horatio Alger myth” – and, as someone once said, you cannot refute a sneer. But among people who have not yet abandoned facts for rhetoric, it is worth stopping to consider whether they are being played for fools by politicians and much of the media.
*Senior Fellow at the Hoover Institution, Stanford University. Published in the Detroit News January 24, 2008.
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