The Rich Aren’t Getting Richer

By  Kevin D. Williamson

Monday, April 11, 2011

Are the rich really getting richer? That’s a pretty standard line from the Left, a lament usually cited in the course of calling for higher tax rates. Robert Reich is particularly fond of this mode of attack: A recent post of his was headlined, “For 70 years, the wealthy have grown wealthier.” Professor Reich probably doesn’t write his own headlines, but it’s a common enough sentiment for him, and his prose is rich with phrases such as “the super-rich got even wealthier this year.”

He isn’t alone in employing this mode. Take this from an April 7 Salon article: “And surely the rich don’t need that 25 percent top rate in the way poor folks need programs like TANF and seniors need Medicare — about 90 percent of all American income gains since the 1970s have gone to the top 10 percent of earners.”

This is not true.

The numbers generally cited in support of this argument do not actually tell us much about what has happened to the incomes of wealthy households over time. That’s because the people who are in the top bracket today are not the people who were in the top bracket last year. There’s a good deal of socioeconomic mobility in the United States — more than you’d think. Our dear, dear friends at the IRS keep track of actual households (boy, do they ever!), and sometimes the Treasury publishes data about what has happened to them. For instance, among those who in 1996 were in the very highest income group isolated for study — the top 0.01 percent — 75 percent were in a lower income group by 2005. The median real income of super-rich households went down, not up. The rich got poorer. Among actual households, income grew proportionally more for those who started off in the low-income groups than those that began in high-income groups.

That wasn’t even an unusually good decade in terms of mobility. During the horrible, horrible Reagan years, as National Review noted back in 1991, the average income growth for actual households in the lowest income bracket was 77 percent over the course of a decade; income growth for actual households in the top group was only 5 percent during those same years. Of those who were in the poorest fifth in 1979, 85.8 percent had moved to a higher bracket by 1988, and 14.7 percent of them moved to the top bracket — which is to say, the poor of 1979 were more likely to be the rich of 1988 than to be the poor of 1988. The poor got richer, and some of them got a lot richer. Reagan’s record has not been matched — Ronald Reagan was the champion of the poor, as it turns out — but economic mobility has been pretty stable for the past 20 years: About 50 percent of U.S. households move from one income group to a different one every decade, and actual households initially in the low-income groups see proportionally more income growth than do actual households initially in the high-income groups.

When somebody says that that top 1 percent saw its income go up by X in the last decade, they are not really talking about what happened to actual households in the top 1 percent. Rather, they are talking about how much money one has to make to qualify for the top 1 percent. All that really means is that the 3 million highest-paid Americans in 2010 made more money than did the 3 million highest-paid Americans in 2000, the 100,000 highest-paid Americans this year made more money than did the 100,000 highest-paid Americans made in 2000, that the 50,000 highest-paid Americans made more money this year than did the 50,000 highest-paid Americans made in 2000, that the 1,000 highest-paid Americans this year made more money than did the 1,000 highest-paid Americans made in 2000, etc., which is not shocking. But, as the Treasury data show: They are not the same people.

When Robert Reich writes that “super-rich got even wealthier this year,” he is making a statement that is not true in most cases — 75 percent of the Clinton-era super rich were not members of the Obama-era super rich. In fact, Treasury found:

•        Income mobility of individuals was considerable in the U.S. economy during the 1996 through 2005 period with roughly half of taxpayers who began in the bottom quintile moving up to a higher income group within ten years.

•         About 55 percent of taxpayers moved to a different income quintile within ten years.

•         Among those with the very highest incomes in 1996 — the top 1/100 of one percent — only 25 percent remained in the group in 2005. Moreover, the median real income of these taxpayers declined over the study period.

•         The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).

 •        Economic growth resulted in rising incomes for most taxpayers over the study period: Median real incomes of all taxpayers increased by 24 percent after adjusting for inflation; real incomes of two-thirds of all taxpayers increased over this period; and median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the high income groups. 

Or, as the authors of the study put it: “While the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income.” (Incidentally, Treasury underestimates mobility by excluding the most mobile population from its study: those under 25. It does this in order to avoid including school-to-work transitions in the data, though presumably it’s catching a fair number of law-school graduates and freshly minted MBAs.)

Progressives ignore this income mobility when denouncing the wicked, wicked rich and their income-hogging ways. This leads to a lot of bad analysis and stupid rhetoric. From Robert Reich, for example: “[The poor] see people at the very top getting away with, well, the equivalent of murder.” Does he really mean the equivalent of murder? Yes, and he writes wistfully of the lynching to come: “An angry population and an angry populace could just as easily turn their anger toward the very rich. Again, it is in the interest of the people at the top to actually call for a more equitable distribution of the gains of economic growth and a better tax system.” Listen up, Thurston Howell III: It’s Reichonomics — or else. But the income-mobility figures suggest that those gains already have been more widely distributed than most people think. (In no small part, incomes are distributed over time: Most people earn more money as they get older.)

So, about those rich, and about that Reich: You’d think a guy who used to be secretary of labor would know better. And I think he does.