The Poor Are Not Getting Poorer

March 26, 2014

The rich may be getting richer, but the poor are definitely not getting poorer. In fact, most Americans got richer over the last 35 years. President Obama likes to stress that income inequality has increased in the United States, but it is hardly "the defining challenge of our time," as he has called it, says Ronald Bailey, a science correspondent for Reason Magazine.

  • Brookings Institution economist Gary Burtless used data from a December 2013 Congressional Budget Office (CBO) study to show that from 1979 to 2010 (this was the last year with available data) the bottom quintile's after-tax income in constant dollars rose by 49 percent. For the second lowest, middle and fourth quintile, those incomes increased by a respective 37 percent, 36 percent and 45 percent.
  • Looking at the top quintile, Burtless found that their income increased by even more -- increasing 54 percent for those in the 90th percentile and below, and increasing 202 percent for those in the top 1 percent.
  • Because of this, the share of pre-tax income to the top quintile has increased from 43 percent to more than 50 percent.

President Obama has suggested that rising inequality limits income mobility, leaving Americans stuck at the bottom. This is not supported by data.

  • In fact, a study by the U.S. Treasury looked at income mobility from 1987 to 1996 and from 1996 to 2005.
  • Over half of taxpayers moved to a different income quintile during that time. And half of taxpayers who started in the bottom quintile moved to a higher income group by the end of each time period.
  • Notably, taxpayers in the top 1 percent in 1996 were more likely to drop to a lower income group by 2005. More than half of households in the top 1 percent in 2005 had not been there in 1996.
  • As for children, the study found that 27 percent of 35 to 40 year olds whose parents had been in the bottom quintile in 1987 were also there in 2007, with 10 percent having made it into the top quintile.
  • Thirty-nine percent of the children whose parents had been in the top quintile in 1987 were still there in 2007, and 9 percent had fallen to the bottom. Children, the report said, were more likely to change their income status than their parents were, especially if they had been in a lower quintile.

Inequality is not the defining challenge of our time. That distinction belongs to persistent joblessness and weak economic growth, perpetuated by administration policies.

Source: Ronald Bailey, "Obama: Wrong About Income Inequality," Reason Magazine, April 2014.

 

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