For Richer and for Poorer: Millionaires Get Poorer While the Poor Get Richer. So What's All This Talk about the Income Gap?

By de Rugy, Veronique | Reason, February 2012 | Go to article overview

For Richer and for Poorer: Millionaires Get Poorer While the Poor Get Richer. So What's All This Talk about the Income Gap?


de Rugy, Veronique, Reason


THE RICH GET RICHER and the poor get poorer, or so the saying goes. Thousands of people have been sleeping outside in tents for months as part of the Occupy Wall Street movement in large part because they believe this statement is both accurate and important. But while there is a nugget of truth there, this critique obscures the great news that income mobility is actually alive and well in the United States of America.

There is plenty of evidence that the richest Americans are richer than the richest Americans of the past. For instance, the top I percent of income earners in 1990 made 14 percent of Adjusted Gross Income (AGI), or pre-tax income, versus 23 percent in 2007--the second highest figure on record. The top x percent of households in 2007 made 275 percent more money adjusted for inflation than the top t percent in 1979, according to an October report from the Congressional Budget Office, while incomes in the bottom 20 percent increased by just 18 percent.

But ending the data in 2007 obscures the fact that the wealthiest I percent took a sizeable hit after the financial crisis, reducing their share of Adjusted Gross Income to 17 percent in 2009. As economist Steven Kaplan of the University of Chicago explained to George Mason University economist Russ Roberts in a recent EconTalk podcast, "Recessions are bad for the rich. If you care about inequality per se, recessions are great." Kaplan also noted that in 2009, the rich had a smaller share of income than they did at any point during Bill Clinton's second term, often cited as a period of significantly greater income equality.

But even if the top I percent were still pulling down one-fifth of national income, this doesn't mean that the remaining 99 percent are worse off, contrary to popular belief. Rather, as Kaplan correctly observed, "income is not a zero-sum game. Somebody else's income does not come at your expense. It could ... but in general these numbers don't have automatic implications for the 99 percent." These kinds of comparisons don't tell us anything about the absolute conditions of lower income earners.

For instance, even though the lower earners have a smaller share of income today than they did in 1990, their absolute income is higher. A smaller share of a larger national pie can still mean more income than the bigger slice of a smaller pie. This is true even after you consider growth in population. According to IRS statistics, in 1990, the bottom 50 percent of income earners reported If percent of real adjusted gross income, some $517 billion in pre-tax income. In 2007, they reported only 12 percent of AGI, but this percentage amounted to more absolute dollars--some $1.1 trillion in pre-tax income.

But even these figures miss a more fundamental point. The top I percent in 1990 are not necessarily the same people as the top I percent in 2012. Data describing comparative income performance generally do not take into account the movement of individual households through time. There is no accurate assessment of the income gap without accounting for income mobility. The more the mobility, the less the significance of widening income disparities.

So what does that mobility look like? Take the top earners in America. Using IRS data, the Tax Foundation has shown that of the 675,000 taxpayers who reported $1 million in pre-tax income at some point between 1999 and 2007, only about half remained millionaires just one year later (see figure).A tiny 6 percent, or 38,000 people, retained their millionaire status for all nine years. In other words, most top earners are likely to lose their membership in the millionaires club.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

For Richer and for Poorer: Millionaires Get Poorer While the Poor Get Richer. So What's All This Talk about the Income Gap?
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.