Another View of Income Inequality
Much is being made of income inequality or unfair income distribution as some like to call it. The discussion is usually framed in terms of income distribution brackets. The bracket most commonly referred to in the media and in political speeches are the upper and lower one percent because the stark contrast between these two extremes helps make the case that the lower one percent is the victim of the upper one percent. As one recent candidate for the U.S. Presidency put it in every campaign speech, “most income increases go to the upper one percent at the expense of the bottom one percent.” As you will see, that is untrue in the extreme.
Most studies and surveys refer to quintile distributions i.e. brackets that each contain 20% of the nation’s total income, and assumes that each bracket contains a fixed population of real flesh and blood human beings. This assumption makes it easier to claim that those in the lower bracket are the victims of those in the upper brackets.
The notion that people are stuck in a specific bracket and are unable to extricate themselves and move into an upper bracket, is widespread because it is politically convenient and emotionally satisfying to the victimization devotees, but is demonstrably wrong. Those economists and researchers who make the effort to dig into the IRS and Census Bureau data, find that the income brackets do not contain fixed groups of individuals but instead contain a constantly changing population of income earners who are, for the most part, on an upward income trajectory through most of their earning years before retiring at a lower income.
One such economist who studied the income data of real flesh and blood people is Thomas Sowell of the Hoover Institution and Stanford University. Sowell’s new book, “Wealth, Poverty and Politics” looks beyond the income brackets at the dynamic movement of individuals from one bracket to another. He took a close look at the highly vaunted top one percent in income and found that contrary to the belief that it is a charmed circle of permanent elite, that 12% of Americans are in this bracket at one time in their lives. He further found that less than half of the people who were in the top 1% in 1996 were still there in 2005.
Some professors, columnists and economists who look only at brackets and not people, can be called “redistributionists.” They see the top one percent as a permanent cadre’ who sit atop a structure of inequality and receive large incomes by taking from the bottom one percent. They tend to favor taking from the rich and redistributing among the poor to achieve, what they call, “social justice.” They ignore the available data which clearly shows that moving up the income ladder is normal and commonplace in our free market economy.
For instance, as Sowell states in “Wealth, Poverty and Politics,” “More than half of all taxpayers moved to a different income quintile between 1996 and 2005, and the same was true of the preceding decade. Among the people in the middle quintile for example, 42 percent moved to a higher quintile, while 25 percent remained in the middle quintile.”
When one looks at actual incomes of people rather than brackets, the conclusion is inescapable that people in the higher brackets are NOT benefitting at the expense of the lower brackets. Also, that for the most part, individuals are not permanent occupants of any income brackets. Also, that for the most part, individuals are not permanent occupants of any income bracket. In fact, over our lifetime we each tend to occupy many brackets. There are, of course, some people who will occupy the top or bottom brackets for most if not all their lives, but programs to provide individuals with options for income improvement are far preferred to failed Marxists schemes to redistribute wealth.