Friday, November 23, 2007

The Only Way to Follow People Over Time is To Follow People, Not Income Brackets or Quintiles

There are wild cards that need to be kept in mind when you hear income statistics thrown around. One of these wild cards is that most Americans do not stay in the same income brackets throughout their lives. Millions of people move from one bracket to another in just a few years.

What that means statistically is that comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years.

Following trends among income brackets over the years creates the illusion of following people over time. But the only way to follow people is to follow people.

That is why the IRS data, which are for people 25 years old and older, and which follow the same individuals over time, find those in the bottom 20 percent of income-tax filers almost doubling their income in a decade. That is why they are no longer in the same bracket.

That is also why the share of income going to the bottom 20 percent bracket can be going down, as the Census Bureau data show, while the income going to the people who began the decade in that bracket is going up by large amounts.


~Thomas Sowell in "
Income Confusion"

4 Comments:

At 11/23/2007 1:03 PM, Anonymous Alex said...

This piece should have been titled "ATTN: PAUL KRUGMAN"

 
At 11/23/2007 4:49 PM, Anonymous Anonymous said...

But this is always true. If you compare an average in time 1 and an average in time 20 each average will be composed of people who are in each bracket and are in the process of moving through the brackets in time 20 just as they did in time 1.

This argument is meaningless.

Actually, I looked at this recently and found that because of the baby boomers moving from the college age bracket -- or the lowest income bracket -- in 1975 to the 50s age bracket -- the highest income bracket -- in 2000 by itself should have generated roughly a five percentage point rise in average real income over this time period.

 
At 11/24/2007 10:13 AM, Blogger juandos said...

I don't know if this made any difference but considering your: "I looked at this recently and found that because of the baby boomers moving from the college age bracket -- or the lowest income bracket -- in 1975 to the 50s age bracket -- the highest income bracket", did you take into account Nixon's price controls?

 
At 11/26/2007 10:15 PM, Anonymous Anonymous said...

To not realize this is like an elementary school teacher fretting one year later that 40% of her school is still reading at a 2nd grade level or lower...

 

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