Growls

We growled on July 2 that American taxpayers were set to get hit with the largest tax hiks in history on January 1, 2011. Now, according to Reuters today, there is talk in Congress on whether to extend all the expiring tax cuts or to allow those for “the wealthy” to expire at year end.

Among other questions, who are “the wealthy” or “the rich,” and should they be the target of liberal politics? Or is there a more appropriate way of looking at income? I think there is, and that is to look at income mobility. A U.S. Treasury Department study, released November 13, 2007, looked at “income mobility of U.S. taxpayers from 1996 through 2005.” The press release summarized the results this way:

“The study showed that, just as in the previous 10-year period, a majority of American taxpayers move from one income group to another over time.  The study also recognizes that the dynamism of the U.S. economy significantly contributes to income mobility.”

The full Treasury Department income mobility study is here. Key findings, according to the press release, included:

• 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 10 years.

• About 55 percent of taxpayers moved to a different income quintile within 10 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.

The Tax Foundation has released a new study that presents income mobility data for the period 1999 through 2007. We’ll growl about it later this week.