NEW EVIDENCE ON TAXES AND INCOME
September 15, 2008
In the United States, people who had low incomes in 1983 didn't necessarily have incomes as low a decade later. People in this country have long moved up the income ladder over time, and this income mobility continues to be true. While some people do remain in the lowest income group, they are the exception, say Arthur B. Laffer, president of Laffer Associates, and Stephen Moore, senior economics writer for the Wall Street Journal editorial board.
One way to quantify income mobility is to examine how many people remain in the same tax bracket over time. Laffer and Moore compared the returns of tax filers in the lowest tax rate bracket (zero) in 1987 with their returns in 1996:
- Only one third of the tax filers were still in the zero tax bracket.
- But 25 percent were now in the 10 percent bracket, 32 percent had moved up to the 15 percent bracket and 9 percent were in the 25 percent, 28 percent, 33 percent or 35 percent brackets; and that was following them for a decade, not a generation.
From 1996 to 2005, we have the income mobility data for income quintiles:
- Of those filers who were in the lowest 20 percent in 1996 and who also filed in 2005, 42.4 percent remained in the bottom 20 percent.
- Some 28.6 percent were in the next highest quintile, 13.9 percent were in the middle quintile, 9.9 percent were in the second highest quintile, and 5.3 percent were in the highest quintile.
What is also striking about the data is that the poor today are, in general, not the same people who were poor even a few years ago, say Laffer and Moore.
Source: Arthur B. Laffer and Stephen Moore, "New Evidence on Taxes and Income," Wall Street Journal, September 15, 2008.
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