Downwardly Mobile America

November 7th, 2011 at 2:07 am | 39 Comments |

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James Pethokoukis has posted a new chart on his blog as part of his ongoing commentary about income inequality in America. In this post, he argues that “alarmists” are wrong to worry about income inequality because America has a lot of upward economic mobility:

Turns out that the Tax Foundation has also looked at the economic mobility issue. Using IRS data, it found that about 60 percent of households that were in the lowest income quintile in 1999 were in a higher quintile in 2007.About 40 percent of households in the top quintile moved to a lower quintile over this 9 year period.

This echoes a comment Rep. Paul Ryan made in his address to the Heritage Foundation:

The Treasury Department’s latest study on income mobility in America found that during the ten-year period starting in 1996, roughly half of the taxpayers who started in the bottom 20 percent had moved up to a higher income group by 2005.

So lets take a closer look at some of this data.

As I look at this chart, I wonder if the data really creates a picture as optimistic its advocates suggest.

There are some data points which I hope are not indicative are downward mobility. At the 2nd quintile of income in 1997, 32% fell to a lower quintile in 2007. At the 3rd quintile, 40% fell into a lower quintile by 2007.

Now at the highest quintile, 37% did fall to a lower quintile, but most of that fall was to the quintile right below it, so still fairly high up. 62% of those in the highest quintile stayed there. Some might consider that to be fairly static but Pethokoukis cites the fact that “40 percent of households in the top quintile moved to a lower quintile over this 9 year period” as a positive sign, so maybe it depends on what amount of movement you consider to be a sign of mobility.

What I would be curious to see, in addition to changes in quintiles, would be changes in income between 1999 and 2007. It wouldn’t be such a problem if the households that there were falling into lower quintiles were getting richer as the economy grows, but are they? This data doesn’t say.

Thankfully, the Federal Reserve Bank of Boston did a similar study. They looked at a set of family income data which covered a similarly wide span of time (from 1994 to 2004).

As an added benefit, the data is also presented with dynamic graphics!

Here are some of their conclusions:

-40% of families were in the same income class in 2004 as in 1994, and only 22% moved up or down by more than one class.

-Over half (54%) of families who started in the poorest income class in 1994 were in the poorest income class in 2004; only 5% of these families made it to the richest income class.

-Inequality was pronounced during the decade. In 1994 the average family in the richest income class had an income‐to‐needs ratio 9 times as high as that of the average family in the poorest class, while in 2004 the richest family had income more than 11 times that of the poorest family, on average.

-Although families who started in the middle three income classes were more likely to move than those who began at the top or bottom—partly because only families in the middle three income classes are able to move both up and down— they were still more likely to end in the income class where they started than in any other income class.

The Boston Fed study goes further than the Tax Foundation study by comparing white and black income mobility. Their analysis of the racial differences is unambiguously sobering:

Downward mobility dominates among black families: 42 percent of black families who could move down (those not already in the poorest income class) did move down.

To be sure, this is a different data set covering a different time frame, but it would probably be worthwhile for the Tax Foundation and other groups to consider some of the questions that this data tried to answer: How do changes in income quintiles relate to relative wealth? What are the differences between different racial groups?

Simply identifying that people are moving along income brackets, as some conservatives are currently doing, is probably not sufficient. Mobility, upwards or downwards, does not provide a complete picture.

One last point, both the studies from the Tax Foundation and the Boston Fed used data from before the recent economic crisis. Does anyone expect that data which looked at the last four years would have any better news?

In fact, shouldn’t conservatives really be trying to find ways to look at whether the ‘Obama Economy’ has exacerbated income inequality? Wouldn’t they want to blame that on him?

Recent Posts by Noah Kristula-Green

39 Comments so far ↓

  • Russnet

    Yes, well, we do. Obama is toast. What is your point?

    • medinnus

      Well, my point is that dismissive partisan morons who state “Obama is toast” are willfully ignorant, over-confident, and Obama’s best chance of a second term.

    • Marioth

      “Obama is toast.”

      Which states will (unselected GOP candidate) take back from Obama, exactly? Show your work if you want to be taken seriously.

  • rbottoms

    Well he faked his birth certificate, caused the Iraq war, destroyed the Afghanistan mission, raised taxes to 1970′s levels, killed Christians in Africa, strangled unborn babies, spit on returning vets, nationalized health care and sold the White House to Saudi Arabia after apologizing to Japan for Hiroshima & Nagasaki so why not throw another log on the fire?

  • Ogemaniac

    When I think about how things are getting worse in the US from a personal perspective, it really hits home. For the basics, I am in my mid-thirties, hold a PhD in chemistry, work in industry, and earn a salary typical for my age and position (low eighties plus a 5-10% bonus, plus typical benefits). That is obviously a lot more than the average American, but…

    1: I will never be as rich as the scientists who trained me. Most of them retired in their early 60′s with million dollar retirement accounts, AND a pension paying several thousand a month, AND social security, which kicked in at sixty five. I’ll get SS two years later than them, won’t have a pension, and am unlikely to hit the million dollar mark (2011 dollars) until my mid sixties. Of course, they owned there own homes outright by that age, and usually a vacation home as well. I likely won’t, because the job market for scientists is now so temporary and unstable that we are better off renting, lest we get stuck with a home and have to move again.

    2: In general, no one I know around my own age is on pace for the kind of retirements my parents’ generation has been blessed with, if they can count on any non-poverty level retirement at all. Even of those of us doing well by today’s standards will be working until our late sixties. The working class will likely work until they fall over and literally can’t work anymore.

    While there are many paths towards addressing this, the one that really irks me for being left off the table is demanding that the current crop of retirees or near-retirees be part of the solution. Instead, politicians continually exempt them from sharing a portion of the burden, despite being more responsible for this mess than any other generation.

    • Frumplestiltskin

      oh but you own a mobile phone and a refridgerator so you are set, right? That generation above you was an accident of history when the US produced nearly half of the worlds output, those days won’t be coming back so at most all I can counsel is to count your ample blessings.
      Though I certainly do agree that todays seniors must be asked to share in the sacrifice, if Medicare is bankrupting us, they should be means tested to some degree.

      • Kevin B

        Don’t just count your blessings–leverage them.

        You have a salary in the low 80′s. Could you live on a salary in the 60′s? If so, then do it.

        Take the excess, and invest it. Twenty thousand, invested over 30 years at 6% simple interest, with the proceeds reinvested, is $1.6 million. At 8%, it’s 2.4 million. At 10%, $3.6 million.

        • NRA Liberal

          You’ve got to be kidding.

          Have you examined the performance of the stock market lately?

        • Kevin B

          Yes. Yes I have. I own several stocks that pay 6% or more in dividends. Some pay over 10%.

          But even setting that aside. Who in their right mind would say, “spend everything you make” when the future is so uncertain? Especially to someone who makes more than the average.

        • Ogemaniac

          “Don’t just count your blessings–leverage them.

          You have a salary in the low 80’s. Could you live on a salary in the 60’s? If so, then do it.”

          My wife and I don’t even spend $40,000 per year, actually. She earns almost nothing, so our mid-eighties, which is low fifties after taxes, 401k, health insurance co-pay, etc leaves us close to a $1000 per month extra. Currently this is being saved, but eventually it will be used for a housing downpayment, college for our kids, etc. It is doubtful that much of this will be saved all the way to retirement.

          “Take the excess, and invest it. Twenty thousand, invested over 30 years at 6% simple interest, with the proceeds reinvested, is $1.6 million. At 8%, it’s 2.4 million. At 10%, $3.6 million.”

          How about I give you my money to invest, and you pay me a mere 5% real interest over inflation. Keep the change. You are nuts if you think the markets will return that much going forward, and in any case, I have to have a real portfolio that is more balanced and has lower returns than a 100% stock play. I would be tickled pink to earn inflation+3% over my lifetime. Hell, so far, I would be tickled pink to have matched inflation lifetime. Realistically, our ~$15,000 per year contribution will add up to around a million dollars 30 years from now, give or take, unless we hit the mother of all bull markets. Of course, we could follow Japan and remain down for two decades and counting.

        • Kevin B

          If you say it can’t be done, then you are certainly correct. I say it can be done, and I am also correct. Call me nuts if you like, but I was 35 in 2000, with a net worth of essentially zero. I have about $1.3 million saved now.

        • Ogemaniac

          Either you are making an insane amount of money, haven’t checked your account at Madoff, Inc lately, or as lucky as all hell. None of those apply to me, nor most other people.

        • Kevin B

          Maybe I’m lucky as hell. I’ve reported investment gains to the IRS in 8 of the last 9 years, and my one year of losses (2008), while significant, were less than my gains the following year.

          If you had bought ten shares of Kimberley Clark three years ago at $50 a share, you would be earning 5.6% of that initial $500 investment in dividends this year. They have raised their dividend each year for the past three years. You could do this. Whether you will is up to you.

        • Ogemaniac

          I could do what? Go back in time and pick the best bargain stocks during late 08 and early 09?

          In fact, I was forced to do the opposite. I was laid off in early 09 and had to shift my non-retirement portfolio towards more conservative investments because that money might have become my living expenses in short order. Fortunately, I was only out of work for about two months, but I largely missed a 15% run up in the markets because of it.

          That’s actually one of the reasons that stock market returns are so poor for small investors. Once the crap hits the fan, small investors are forced to pull out of the markets because the money is something they need, and can’t afford to lose even more, lest we get stuck eating dog food during retirement. The plutocracy, in contrast, can lever up and twenty-fold bet on the new low-priced stocks. They win, we lose. The market is a complete suckers game. Only the bankers and insiders come out ahead.

        • Kevin B

          I didn’t pick the best bargain stock as an example. I picked a well-known company that makes diapers, and pays a decent, increasing, dividend. I didn’t even pick the highest dividend. You can buy such stocks now. Diaper companies, telecommunications companies, energy companies. Blue chips.

          I’m not an insider, or a banker. I keep enough money in CD’s and savings accounts to keep me afloat for several months if I get in a bind. Anything beyond that, I’m willing to take a calculated risk, because it’s money I won’t actually need for decades.

    • Marioth

      I think I could squeak by on $80k. In fact, I would live fairly well at $40k. I am essentially flat-lined at $22k but only because I insist on living in L.A.

      When you know the definition of the word “enough,” the whole ancient husband/wife squabble over money drops in intensity by several notches.

      I’m with Frump: time to find the gratitude for what we have and defend it.

      • Ogemaniac

        I certainly have enough. More than enough. I have repeatedly called for my own taxes to be raised, because I would much rather see my money going towards providing a stable, secure and sustainable society than whatever toys, games, and travel I buy with my marginal dollars.

    • armstp


      Maybe putting your SS in the stock market will help – a la what the Republicans want you to do…..

      • Ogemaniac

        If SS were nuked, I would have to put the money in bonds and insurance premiums, not stocks. SS is essentially the conservative ballast of my retirement portfolio, with low but secure returns combined with life and disability insurance. The existence of SS allows me to be more aggressive with my 401k than I otherwise would be.

        A lot of conservatives fail to understand this pretty obvious point, and try to calculate what would happen if they put all of their SS payments into stocks.

  • Ogemaniac

    Btw, the numbers here are all but useless. For example, someone finishing grad school and getting a $40,000 office job (not a good thing!) would count as someone moving up a quintile or two. A wealthy doctor retiring would count as someone dropping a quintile or two. Most of the “movement” in these numbers is probably people moving through the normal arc of life, not people moving ahead of or falling behind peers of their own age group. To have any meaning at all, the numbers would have to look at people the same age.

    • Graychin

      Exactly what I was thinking.

      A plush retirement is not downward mobility. Neither is beginning a career after graduation from Harvard Law, paid for with Daddy’s dime, what most of us consider to be upward mobility.

      When you open a study from the Tax Foundation, you can be pretty sure it will support the right-wing narrative du jour.

  • ottovbvs

    The tax foundation belongs in the same category as AEI or Heritage so any numbers they produce are to be treated with caution since they are basically in the spin business producing material for people like Pethokoukis who having been completely thrashed last week over his analysis of the CBO report is now creating some another smoke screen where he uses movement between tax brackets to imply we’re not seeing substantial inequality shifts.

  • tommybones

    Thirty years of conservative economic policies will have this effect.

  • dante

    The problem that Conservatives have with accepting the truth is that things that would help Americans become upwardly mobile are anathema to them: education funding, job training, socialized medicine (so that they *can* start out on their own without having to worry about coming up with $15k in health care costs each year), etc. Let’s face it, Conservatives *don’t* want Americans to be socially upward mobile, because that would mean less of the pie for them. They seem content on stacking the deck against the majority of the American people, and stacking it towards the richest in this country…

  • mannie

    Remember, there has been a sea-change in money matters between 2007 and 2011. I really do take the phrase “meltdown” at face value. Everybody I meet I am asking myself…”how dramatically did their world change in 2008?” And I suspect for most, very dramatically.

  • Watusie

    News out of Ohio is that Republicans are officially endorsing downward mobility – but only for Democrats. Republicans, especially those who get their paycheck from the government, can expect to continue to advance.

    Here is the story: GOP state Rep. Lou Blessing, Speaker Pro Tempore of the Ohio House, prominent Republican voice in the SB-5 referendum fight, went on radio. He was asked why Ohio Republicans are demanding “shared sacrifice” from union members but have refused to share some of the sacrifice themselves and accept a pay cut. He said:

    Because it’s not merited. I earn my pay. I think that was just political baloney. So they can say in an ad, `Gee , you know, they didn’t support a pay cut.’ Well, no, I don’t support a pay cut. Republicans earn their money. Apparently Democrats don’t. They feel they should be paid less. That may be true. Maybe we’ll just cut the Democrats’ pay.

    As Greg Sargent notes, “neatly captures what all this is really about”.

    • ottovbvs

      Happily I’m sure this is all over Ohio where it looks like Kasich is going to a large black eye on election day with the repeal of this legislation. Taking the longer view it’s probably going to help Obama hold onto the state next November. There’s nothing like an event like this to remind the majority of middle America exactly what the agenda of the GOP consists of.

      • dante

        Jeez…. Can you imagine how powerful the GOP would be right now if they *hadn’t* tried to govern for the small minority and instead had taken a more moderate position? Polling against this referendum is trending towards 70% disapproval!! As a result, instead of getting incremental gains (public employees paying more towards their health care), they’ll get *nothing*. Furthermore, while they’re claiming they’re going to try to bring back some of the more popular (ie, moderate) parts of it, I’m pretty sure that it’d be political suicide.

        • Watusie

          I think the most recent PPP poll from Ohio answers your question quantitatively.

          1) Kasich was elected in the 2010 Republican wave, defeating incumbent Democrat Ted Strickland by a 49%-47% margin.
          2)When asked if they could vote again, the respondents in the poll chose Strickland by a 55%-37% margin.

    • Primrose

      Good Grief, he didn’t really say this? I am continually struck by the complete lack of self-awareness and self-reflection within the Republican party. It really is my only hope that things will change. They are not honest enough to keep their mouth shut.

  • dante

    Noah – Since you seem to be relatively comfortable in poking the GOP in the eye with a short stick, have you thought about doing a piece on the difference between US “conservatives” and foreign conservatives? Everywhere around the world *actual* conservatives are doing great things for their budgets: They’re cutting spending and **GASP** raising taxes.

    France’s Center-Right government proposes $18b in budget savings through spending cuts and increased taxes.

    It also included a temporary 5 percent rise in corporate tax for firms with a turnover of more than 250 million euros, and an increase in the discounted rate of VAT sales tax to 7 percent from 5.5 percent with the exception of some items.

    Why is it that internationally, conservatives can grasp the concept that raising taxes raises tax revenues, but here in the US “conservatives” have their heads stuck in the proverbial sand??

    • icarusr

      This is from an exchange in Canada’s House of Commons; reply of a Conservative Finance Minister (eq. to Treasury Secretary) to a question on tax credits:

      “Hon. Jim Flaherty: We have a progressive tax system in this country. I’m proud of our progressive tax system. Because we have a progressive tax system various credits have different effects on different families depending on their level of income.

      The same families you’re complaining about that earn more money than some other families are the same families that pay more tax than those other families because they earn more. That’s the nature of a progressive tax system. This is a good thing in our democracy. This is not a bad thing.”

      Conservatives elsewhere understand the point of having a progressive tax system simply because they are sane. And believe in democracy.

  • sweatyb

    Why are we looking at quintiles? Lumping the top 1% in with the 19% below them gives a very different picture of wealth distribution.

    You know the Occupy protesters aren’t chanting “We… Are… The Seventy-Nine Percent”, right?

    • balconesfault

      You know the Occupy protesters aren’t chanting “We… Are… The Seventy-Nine Percent”, right?

      Well put.

      Note also that the study seems to avoid with a passion any discussion of real wages, instead focusing on what “quintile” you fall in.

      If you move from the 2nd quintile to the 3rd … but the real earnings of the 3rd quintile has fallen to that of the 2nd quintile in the past … that just means you’re doing a better job of treading water than others, who are being sucked down by the undertow created via the supply-side tide.

  • LFC

    Andrew Sullivan posted an amazing study done with capuchin monkeys that showed how unfair rewards rather than large rewards for hard work caused “productivity” to shut down.

    Exhibit A in today’s unfairness is a 15% capital gains rate for people who already have money but income tax plus payroll tax plus self-employment tax for those trying to get ahead by starting their own business.

  • armstp

    The Tax Foundation is just another extreme conservative propaganda outfit funded by the Koch Brothers. In the past they have been heavily critized for the crap the put out as not standing up to any fact checking or in heavily distorting their conclusions. Their direct lobbying methods have also been borderline unethical and illegal.


    On the quality of their work:

    “Paul Krugman wrote in 2008 in his New York Times blog “The Tax Foundation is not a reliable source,” drawing attention to a post by Greg Mankiw which cited foundation data[and then linking to an post by Mark Thoma, which also included comments by Linda Beale and Dean Baker, at Economist’s View. Krugman commented in making the latter link: “Everyone who did a little fact-checking.”

    In 2011, Krugman accused the Tax Foundation of “deliberate fraud” in connection with a report it issued concerning the American Jobs Act.”

    “The Tax Foundation is busy again pushing its latest propaganda idea–that the US has such high corporate taxes that it stifles competition and hurts our economy–with a new “” organization. ”

    “The Tax Foundation does something else it often tends to do in setting out its propaganda: quote one source as a definitive authority, without mentioning conflicting conclusions from other respectable sources.”


    On their possibly illegal and certainly unethical lobbying:

    “The foundation is the sixth largest financial sponsor of privately funded House and Senate staff travel between January 2000 and August 2006; the vast majority of the trips were for staffers who work on powerful committees that shape U.S. tax laws. ”

    “As recently as last year, one of the Tax Foundation’s directors was registered as a lobbyist for Koch Industries, and another lobbied for Exxon Mobil Corp. in 2004, according to the Senate’s Office of Public Records.

    Koch Industries has been a prominent advocate of repealing the estate tax, said a report earlier this year by the government watchdog group Public Citizen and United for a Fair Economy, a liberal think tank. The Tax Foundation also supports repeal of the estate tax.

    Some legal experts believe the involvement of lobbyists with foundations that sponsor congressional travel can be perilous.

    “It seems like slippery, if not dangerous, for lobbyists to run a foundation,” said Charles Tiefer, professor of law at the University of Baltimore.”

  • Edoc

    Jonathan Chait: Life Imitates Annie Hall, Economics Edition
    Not long ago, American Enterprise Institute blogger James Pethokoukis proclaimed “income inequality is a myth.” Pethokoukis’s first data point cited a paper by Northwestern economic Robert Gordon, which Pethokoukis conscripted to bolster his claim that “income gains have been shared fairly equally.” Ryan Chittum of Columbia Journalism Review reads the Gordon paper and finds that it does not actually say what Pethokoukis thinks it says.

    Kevin Drum: Yes Indeed, Income Inequality Really is Growing
    James Pethokoukis is on a mission to show that rising income inequality isn’t really a big deal… The big gun in his arsenal is a 2009 paper by Robert Gordon… Matt O’Brien tweets: “I talked to Robert Gordon here. He was flabbergasted his work was being used to argue inequality is a myth.”

    Jared Bernstein: Diminished Income Mobility: A Warning
    It’s not enough to say, “because we have mobility—i.e., families move up and down the income scale—greater inequality is not a problem.” You have to account for the dynamics: to offset greater inequality requires a higher rate of mobility.