Census Data Show Significant Income Mobility
One way to quantify income mobility is to examine how many people remain in the same tax bracket over time. We compared the returns of tax filers in the lowest tax rate bracket (zero) in 1987 with their returns in 1996. Only one third of the tax filers were still in the zero tax bracket and two thirds had moved up: 25% were now in the 10% bracket, 32% had moved up to the 15% bracket and 9% were in the 25%, 28%, 33% or 35% brackets. And that was following them for a decade, not a generation.
From 1996 to 2005, we have the income mobility data for income quintiles. Of those filers who were in the lowest 20% in 1996 and who also filed in 2005, 42.4% remained in the bottom 20% but 57.6% had moved up to a higher quintile: 28.6% were in the next highest quintile, 13.9% were in the middle quintile, 9.9% were in the second highest quintile, and 5.3% were in the highest quintile.
The data also show downward mobility among the highest income earners. The top 1% in 1996 saw an average decline in their real, after-tax incomes by 52% in the next 10 years.
~Art Laffer and Stephen Moore in today's WSJ