Bartlett: Income Mobility at Top and Bottom Mitigates Inequality

New York Times:  As Income Inequality Grows, Some Movement at the Top and Bottom, by Bruce Bartlett:

On June 11, the Federal Reserve published the latest results of its triennial survey of consumer finances. News reports focused on the decline in the median net worth of all families to $77,300 in 2010 from $126,400 in 2007, reflecting the devastating impact of the financial crisis. The data also demonstrates that there is some fluidity in income mobility at both the top and the bottom of the income tables.

The table below is from the Fed report. It examines the income of families in 2007 and the same families in 2009, distributed in 20 percent brackets. ...

On June 15, the conservative Tax Foundation published data on the mobility of millionaires, that is, those reporting at least $1 million of adjusted gross income. ...The table below from the Tax Foundation study shows that half of those who reported $1 million or more of income did so only once between 1999 and 2007, 15% did so twice and only 6% did so every year. ...

Earlier this month, the IRS published new data on income mobility among the 400 taxpayers with the largest adjusted gross incomes -– those over $77 million in 2009. This data has been compiled for 18 years, and the IRS is able to tell which members have been on the list multiple years by tracking their Social Security numbers. ... As the table below indicates, over the full 18-year period, a total of 3,869 different taxpayers have appeared on the IRS Top 400 list. Of this number, 2,824, or 73%, have appeared only once; 458, or 12%, have appeared twice, not necessarily consecutively, and so on. Only 87 taxpayers, or just over 2% of all those who have ever appeared in the Top 400, have been on the list for 10 years or more.

It is indisputable that the distribution of income in the United States has become more unequal. However, many economists say they believe that turnover among both the poor and the rich substantially mitigates its impact. If everyone remained in the same income bracket year after year, the negative effects of inequality would be far worse.

(Hat Tip: Bill Turnier.)