A Progressive Society After All
Nov 13th, 2007 by Micah Tillman | 4 Comments |
As I wrote below, I think a lot of political policies assume a static society. So I found this interesting:
The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
I don’t know. There’s something fishy about this, particularly in how I’m not sure how we can be assured such a sampling, however large, was really random, and therefore representative of a wider trend.
For one thing, the poorest of the poor probably aren’t going to file income taxes. What about them? Maybe they don’t constitute that huge of a proportion of the over-all population. What about the many people who either fudge or don’t report their taxes when they should?
I have no idea how this works. You can take it up with the Feds I guess. Or maybe they deal with that question in the article. :-)
The only point I wanted to make is that people’s incomes change, and therefore assuming a static society will get politicians in trouble when they’re making policy.
Even the very poor tend to file income taxes. Pdxstudent is probably thinking of the very poorest — the perennially homeless, who probably don’t bother to file income taxes. I think we can stipulate that this very small percentage of the population never leave poverty.
As for its being a random sample, I assume that it is a random sample of all income taxes filed and income taxes filed comes very close to covering the entire universe of the American population (for people 25 and over, which this study is limited to). So unless their sampling methodology was seriously flawed (which I doubt, unless someone has reason to think it was), then there’s no reason I know of why this shouldn’t give valid results.
The people who fudge their taxes should have an effect the other way. Obviously, it makes more sense to fudge one’s taxes and underreport income the more money one makes. So any effect this has (probably very small) should cause an appearance of less social mobility rather than more. People would have a vested interest in flattening out their income so that income gains don’t count against them. Again, I doubt this effect is very large.
Anyway, if you read the economic data, none of this will be a surprise. What is the most affluent segment of our population? The old. What is the poorest? The young. Very few people begin their lives making more money than they’ll ever make again. Most people gain in income (and relative income) as they age with young people starting closer to the bottom. It is not clear to me that this data is anything to get too excited about. Personally, I’d like to see a little more mobility than that. The study basically says that the United States’s social mobility has stayed about the same for the last thirty or forty years. I was hoping to see more progress. The Wall Street Journal editorial page is crowing because it refutes the perception that social mobility has worsened, and I suppose that’s a good thing to refute, but no economist that I know of was endorsing such a view even before this study, regardless of whether John Edwards was.
I make more at this point than I ever have. That’s true for most people, as this study shows.
There are so many ways to increase one’s income:
1) Stick to a job to gain seniority.
2) Impress your boss to get raises and/or promotions.
3) Get more education.
4) Get a better job.
5) Save and invest wisely.
6) Take another job on the side.
7) Invent or write or do some other creative work on the side.
And there are so many incentives to want to increase one’s income. It only make sense that almost everyone is doing so all the time.