Income Mobility Mitigates Income Inequality

The Tax Foundation today published Income Mobility and the Persistence of Millionaires, 1999 to 2007, by Robert Carroll:
Concern over the rising gap between the rich and poor has been the primary rationale for President Obama’s redistributive policies. But one important aspect of the American economy that should lessen concerns about snapshots of income inequality is the mobility of people up and down the economic ladder.

If people move quickly up and down through the income spectrum, the position they occupy at any point in time may be less of a concern. Moreover, it is natural that people at different stages in their life cycle of earnings—just entering the work force, just retired, or midlife during their peak earnings years-would occupy different rungs of the economic ladder.

– Concerns over increased income inequality should be tempered by the fact that a substantial number of households move up or down through the income distribution over time.
– Nearly 60% of households in the bottom income quintile in 1999 were in a higher quintile in 2007, and roughly 40% of tax returns in the top quintile in 1999 were in a lower quintile in 2007.
– Roughly half of millionaires during the1999 through 2007 period attained this status just once during those nine years. Only 6% of this group were millionaires in all nine years.
– The volatile nature of capital gains realizations appears to be a major explanation for the transiency of millionaires.

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