Wednesday, October 19, 2011

Only 4 individuals (0.1%) appeared on the list every year, 17 out of 17

Interesting statistics from a comment in response to an original blog post, 5 reasons why income inequality is a myth — and Occupy Wall Street is wrong by James Pethokoukis. The original post is provocative and I think probably has some marginal merit but is also fairly anemic in terms of its proof. The statistics in the comment ring true from both a logic perspective as well as in terms of anecdotal evidence. Too bad they didn't link to the study.

This would also seem consistent with the statistic cited by Thomas Sowell that only some 1% of people in poverty remain in poverty over any lengthy period of time, I think it was 15 or 17 years.

So is the real issue income inequality as I tend to think about it or is it really income volatility (income uncertainty). Even if you can anticipate moving on average from the bottom quintile (as a poor college student) to the top quintile (as a seasoned business person, entrepreneur or professional), would you still have a concern about income inequality because you could anticipate your income quintile potentially shifting one or two tranches in any given year? If things are steady and predictable, perhaps we are less concerned about lower productivity.
“Many of the top 1% this year are not in the top 1% next year.”

Correct. IRS statistics for the 17 year period 1992-2008 for the “400 Individual Tax Returns Reporting the Highest Adjusted Gross Incomes” show that a total of 3672 different individuals made the IRS list one or more times over that time period. Of that total, 2676 of them, roughly 73% of the 3672 different tax filers, appeared on this list just once, probably for the reasons you mentioned. Another 440 individuals (12% of the 3672) appeared on the list twice, while 5% appeared on it 3 times. Only 4 individuals (0.1%) appeared on the list every year, 17 out of 17.

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