SCOTUS Affirms Reach of 2nd Amendment Rights  |   Home  |   Political Games With Bucyrus

Taxes Over Time By Quintile

Boy, you can certainly see the impact of the so-called Bush tax cuts.  One wonders what will happen when they expire at the end of this year. 

Via CBO; hat tip Greg Mankiw.

Posted by Owen at 1237 hrs
Politics + Politics - General

1. CBO Link to some other graphs.

   Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 1301 hrs
   
   
   

2. Thanks for the link to the additional graphs, Smeety.  Those are interesting as well.  Regardless of personal opinions, additional information is always good.

   I’d like to offer another, a logarithmic chart of income distribution over time.  I think it’s important to consider that these quintile points are not always constant in terms of real dollars, but are in fact quite constant when one takes the exponential growth of wealth into consideration.

   What you find is that the 40th to 80th percentiles track fairly closely to one another.  The 95th percentile has grown a bit faster, and that the 20th percentile has seen very little inflation-adjusted growth since the 70’s.  This all is said, of course, with the understanding that assorted government programs may or may not play a role in this (on both ends), and that people are often far more mobile between quintiles than the actual measurements are.

   So in effect, when compared to that sort of middle group of Americans, the rich are in fact getting relatively richer, and the poor are in fact getting relatively poorer.  Whether that’s good or bad or whether the government has an interest combatting income inequality in the name of political stability or some other social good is a discussion for another day.  But the numbers are interesting to consider.

   Posted by Recess Supervisor on June 28, 2010 at 1339 hrs
   
   
   

3. One wonders what will happen when they expire at the end of this year.

   I anticipate that mine won’t expire.

   Posted by scott on June 28, 2010 at 1438 hrs
   
   
   

4. What is important about income distribution among quintiles is how long a particular person is able to jump between quintiles, or stay in a particular quintile.  Income mobility is what is important not what the percentages are at any given point in time.

   Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 1446 hrs
   
   
   

5. I get really sick of the hand wringing over the wealth gap. It’s most often just politicians trying to divide people into classes and manipulate animosity & envy to further their own agenda. But more importantly, it’s a distraction - going after a pseudo problem that takes away from what should be the real concern. Life - and income/wealth is not a zero-sum game. The rich can and do get richer without having any effect on the rest of us. When Bill Gates went from a millionaire to a billionaire, it has absolutely no effect on me - well aside from maybe a bit of annoyance because I’m an Apple guy

   The real concern needs to be:
   Are we effectively helping those who most need it?
   Are the poor better off today than they were yesterday?

   And ultimately one of the best ways we’ve achieved the latter - what has been the greatest strength of America - is the opportunity to rise up from meager means to great accomplishment.

   Unfortunately, many of the very programs we’ve put in place to help, paradoxically serve to further lock people into place - to keep them down. When we provide disincentives to achieve for ones self…when we foster a sense of entitlement and dependency on handouts by those who are capable but choose not to help themselves we are only making things worse.

   Finally something I had seen awhile back, an organization called Spotlight on Poverty and Opportunity, had a report that covered (among other things) the mobility issue:
   http://spotlightonpoverty.org/news.aspx?id=b81ae2be-9132-4c7b-87e6-ca65eaec1735

   One of their findings:

   A cherished piece of the American Dream – the notion that individuals have the opportunity to rise beyond their parent’s economic status – is not standing up to scrutiny. A study by the Economic Mobility Project finds that 42 percent of children born to parents in the bottom fifth of income distribution remain in the bottom, and 39 percent born to parents in the top fifth remain at the top. Steps must be taken to strengthen our economy and expand opportunities for jobs, ownership and affordable housing.

   Though this still has the error of looking at the problem necessitating a zero-sum (for each person who rises out of the bottom quintile, one must fall down into it) and it says nothing about the opportunity to rise only the end results, it does provide some interesting insight into the mobility issue. Namely, while I’d most certainly like to see a rise in the 42 percent of those born into the bottom fifth remain in the bottom, the fact that a majority – 61 percent of those born into the top quintile of income actually drop out of it is very surprising to me. Certainly I’d assume the vast majority of these are still very well off – so I wouldn’t call for any sympathy. But given discussion over estate taxes and wealth in general, I would have thought being in the top income group would be a much higher guarantee of remaining there than it actually is.

   Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 1458 hrs
   
   
   

6. Yes, but Locke…  that also means that 59% of those born into the bottom quintile climb out of it.

   I would rather focus on why the remaining 41% stay there.  ie - was is because of some of their own actions, like dropping out of school or drug addiction, etc.

   Open question for those that have perused the raw data…  is there anything showing the bottom quintile in inflation-adjusted dollars?  ie - is a “poor” person’s income higher now than it was say 20 years ago even though it is still the bottom quintile?  In other words, is the standard of living (cell phones, cable TV, a second car) rising even for the bottom quintile?

   Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 1952 hrs
   
   
   

7. Neomom, I think what you’re looking for is actually the chart I linked to in my original comment.  And the answer is that there’s not much difference at the lowest quintile since around 1970.  The middle three quintiles have seen modest growth, and those at 95% have done pretty well.  But again, a lot of that could be owed simply to the exponential growth of wealth.  At 5% a year, a guy who starts with $500k in the bank is going to have a lot more money in 10 years than a guy who starts with $5k.

   Posted by Recess Supervisor on June 28, 2010 at 2007 hrs
   
   
   

8. Expanding on what Locke said… I would also question what ages the Spotlight on Poverty and Opportunity looked at.  I was born into the bottom quintile, but now reside in the top.  However ten years ago I was somewhere in the middle.  And who knows where I’ll be ten years from now?  (I’m 39).  When I’m 75 years old (assuming I make it that far), I’m assuming my income will be pretty low and that I’ll be living off of savings and investments.  How is that ranked in those sorts of things?

   Income studies always leave out the most important parts of the whole story.

   Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 2024 hrs
   
   
   

9. Sorry RS - the terms “Wikipedia” and “Logorithmic” gave me chart aversion…

   However, it appears that the graph is in inflation adjusted dollars.  That being the case, the lowest quintile has made significant gains in real income since the ‘70’s - regardless of whether or not the gap between the top and bottom quinitiles is growing.  I guess that whole rising tides float everyone’s boats things works.  Also of note, the top quintile starts at $197K or so and goes to infinity…  That’s one heckuva spread.  While I would love to be making $197K, I would not exactly count that as “rich” either.

   Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 2053 hrs
   
   
   

10. A great book that I read is “Elsewhere, U.S.A” by Dalton Conley, 2009.  The book does touch on income equality, amongst other things.

    One of the drivers is the increased role of women in the workplace (women have moved into higher paying jobs) & people marrying partners with equal educations/incomes.  In the “old” days, typically the husband was the major wage earner and if the wife worked, she didn’t make nearly as much.  In the professional class, you now have lawyers, physicians, engineers, accountants, etc. marrying other lawyers, physicians, engineers, accountants, etc. 

    As I look at people I know both personally and professionally, the majority if married are married to other professionals.  Our family’s pediatrician is married to a fund manager, my lawyer is married to another lawyer, my wife’s doctor is married to the anesthesiologist who took care of me when I had surgery, my nephew who is a lawyer married a CPA.  This has been a major factor in the growth of higher income households.

    Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 2142 hrs
    
    
    

11. Oops, in my comment above I should have said “income inequality”.

    Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 2144 hrs
    
    
    

12. Great discussion.  Much appreciated.  Thank you to all.

    Posted by .(JavaScript must be enabled to view this email address) on June 28, 2010 at 2254 hrs
    
    
    

Commenting is not available in this channel entry.