Debunking myths about income

Debunking myths about income

October 29th, 2011 in Opinion Free Press

Whatever hard times our nation may suffer, one of the hallmarks of the United States' free-market system is that it generates long-term upward mobility across income levels.

That is borne out in a new study by the Congressional Budget Office.

The CBO looked at income variation from 1979 to 2007. After controlling for inflation, the CBO found that average after-tax household income increased during that nearly three-decade time period for all income levels.

Those in the lowest 20 percent by income level saw their real income rise 18 percent from 1979 to 2007. The middle 60 percent of households had an income increase of nearly 40 percent. Households in the 81 percent to 99 percent range by income had an average 65 percent income increase. And the top 1 percent of households had an income increase of 275 percent!

You've no doubt heard the saying, "The rich get richer and the poor get poorer." But this study demonstrates that in America, only half of that adage is true. The rich did get richer -- but so did the poor and the middle class.

And as economist Thomas Sowell and others have pointed out, millions of Americans move from one income bracket to another -- often numerous times during their lives. As the CBO put it, "[T]he population with income in the lowest 20 percent in 2007 was not necessarily the same as the population in that category in 1979."

In fact, a University of Michigan study that looked at income changes from 1975 to 1991 found that only 5 percent of the people who were in the lowest bracket in 1975 were still there in 1991. About six times that many had risen to the top income bracket!

And the U.S. Treasury Department notes that the income of the people in the bottom 20 percent in 1996 rose 91 percent by 2005 -- moving many of them into a higher bracket.

That amazing economic mobility is all too often ignored by those who advocate imposing higher taxes to redistribute wealth.

That is unfortunate, because what the United States needs is not more class resentment -- much less higher taxes. We need to be equipping young people with a good education and the work ethic they need to move up themselves. Sadly, they will have a hard time succeeding if they falsely believe the way to do that is to punish the success of others.