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Willisms

« Trivia Tidbit Of The Day: Part 460 -- Media Bias. | WILLisms.com | Recommendation of the Week: Part I. »

Trivia Tidbit Of The Day: Part 461 -- Inequality Fleets, Moots & Peeves.

Way More Confusing Than It Ought To Be-

If you have read one of the three+ million copies of Eats, Shoots & Leaves in circulation today-- or even if you haven't-- you probably understand that punctuation can vastly change the meaning of an otherwise basic sentence.

As the title of the book suggests, punctuation can cause a panda to walk into a bar, eat a sandwich, shoot up the place with a shotgun, and leave; or it can simply declare that a panda eats bamboo shoots and leaves. All with punctuation, using the same words.

When people talk about "inequality" today in the context of American politics, it often seems like people are using the same words but meaning vastly different things. As high school debate judges like to say, "it's like ships passing in the night."

We hear people talk about "the rich" and "the middle class" and "the poor" all the time, without any adequate definitions to guide us. The populists and class warfare hawks (like John Edwards) thrive on the fact that many people conceptualize "rich" and "poor" as fixed positions over time.

In the real world, those positions change with regularity. On the Forbes 400 list, for example, there are sources of wealth listed that did not even exist a decade or two ago. 270 of the 400 (67.5%) are classified as entirely self-made, while 74 (18.5%) inherited their fortunes. 56 (14%) inherited some of it, but made some of it on their own. The top of the Forbes 400 list is not populated exclusively by Rockefellers and Carnegies and other old wealth.

Similarly, people at the very bottom of wealth and income levels in America do not remain there forever, either.

Yesterday, the Treasury Department (as reported by The Wall Street Journal) released an exhaustive study on income mobility (.pdf).

The WSJ piece gives the report a fantastic summary, including this graph:

incomeinequalitybogus.gif
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.

Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.

Also encouraging is the fact that the after-inflation median income of all tax filers increased by an impressive 24% over the same period. Two of every three workers had a real income gain -- which contradicts the Huckabee-Edwards-Lou Dobbs spin about stagnant incomes.

....

The Treasury study found that those tax filers who were in the poorest income quintile in 1996 saw a near doubling of their incomes (90.5%) over the subsequent decade. Those in the highest quintile, on the other hand, saw only modest income gains (10%). The nearby table tells the story, which is that the poorer an individual or household was in 1996 the greater the percentage income gain after 10 years.

Only one income group experienced an absolute decline in real income -- the richest 1% in 1996. Those households lost 25.8% of their income. Moreover, more than half (57.4%) of the richest 1% in 1996 had dropped to a lower income group by 2005.

Other significant findings include (.pdf):

• About 55 percent of taxpayers moved to a different income quintile within 10 years.

....

• The composition of the very top income groups changes dramatically over time. Less than half (40 percent or 43 percent depending on the measure) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Only about 25 percent of the individuals in the
top 1/100th percent in 1996 remained in the top 1/100th percent in 2005.

Even more impressive is the increase in mean (rather than median) income of the lowest quintile (.pdf):

income19962005.gif

Appropriately, this 232.5% increase indicates that, while the median income of the lowest quintile almost doubled (the median part indicating widespread improvement), the impressive gains in the mean show that some in the lower quintile (like the ones who made it all the way to the top 1%) far outperformed others. Inequality in action.

You simply do not see these kinds of numbers in many countries, especially those with rigid pro-union labor laws and punishingly high taxes. Yet, many of those countries are moving toward flatter, lower taxes, while Democrats in America want to move us backward toward a frightening and stifling era of economic policy. As it should be noted any time equality is cited as a aspirational goal of public policy, let's pause here and recall that the heydays of income equality in America were the 1930s and 1970s.

Do we really want to emulate the policies of the 1930s and/or 1970s, the two worst decades for the economy in the 20th century, in order to achieve a greater level of equality? Yuck.

Nevertheless, people in both parties use inequality as a cheap-but-effective rhetorical tool. John Edwards talks about how two Americas exist, and how we need to fix the problem through income redistribution. Hillary Clinton talks about outrageous profits of certain industries, and how we need to "take" them to fund other endeavors. Mike Huckabee talks about how the most successful people in America earn a few hundred times more than entry level workers, and how that is "just not right." Lou Dobbs, Duncan Hunter, and others blame illegal immigration for stagnant incomes of lower and middle income workers, nevermind that incomes, especially when you account for benefits like health insurance and pensions, are just not stagnant.

No wonder so many people are confused by the whole concept of equality (and inequality). Fortunately, my intuition tells me that most Americans "get" that when The Declaration of Independence declares "that all men are created equal," it doesn't guarantee Soviet-style equality of outcomes. America does guarantee, as John Adams wrote to Patrick Henry a month and a day before the drafting of The Declaration, equality under the law: "The decree is gone forth, and it cannot be recalled, that a more equal liberty than has prevailed in other parts of the earth must be established in America."

Equal liberty. In other words, the equal treatment, under the law, of all citizens, from the government. The equal opportunity to fail, middle out, or succeed.

Sticking it to successful people-- via graduated and progressive income taxes, for example-- seems inherently antithetical to the very concept of America.

Because incomes and wealth are always changing, inequality is fleeting. The fact that "the poor" and "the rich" are not the same people after ten years essentially makes inequality moot as a problem -- or symptom of a problem-- that needs attention. The constant harping on inequality in the political arena, meanwhile, will probably remain a peeve of reasonable people as long as populists need an easy backup plan to fall back on when nothing else is working.

Based on actual analysis of actual data, inequality fleets, moots, and peeves.

-------------------------------------

Previous Trivia Tidbit: Media Bias.

Posted by Will Franklin · 14 November 2007 04:19 PM

Comments

OH! So that is what panda monium is all about...

Posted by: Zsa Zsa at November 14, 2007 06:04 PM

Welcome back!

Not only is "[s]ticking it to successful people... inherently antithetical to the very concept of America," taxation itself is antithetical to the concept and foundation of America (remember the Boston Tea Party?).

Having said that, I'm not a raving anti-tax zealot. I recognize that there are services that the government provides that are worth paying for, so I'm OK with the 16th amendment.

However, I recently learned that in 1913, Federal income taxes started at 1% and maxed out at 7%. I also read somewhere that some people wanted to put a 4% limit into the 16th Amendment itself, but that proposal was axed because people feared that Congress would immediately jack taxes up to that limit.

What would those people have thought of the 1954 tax code and its maximum rate of 91%?

Posted by: Nathan Hale at November 14, 2007 08:20 PM