The Highly Transient Millionaires
Key findings from a new study from The Tax Foundation "Income Mobility and the Persistence Of Millionaires, 1999 to 2007":
1. Using a panel of tax returns from 1999 through 2007, this report finds that nearly 60 percent of households in the bottom quintile in 1999 are in a higher quintile in 2007 (and more than 16 percent are in one of the top two quintiles in 2007). Roughly 40 percent of tax returns in the top quintile in 1999 are in a lower quintile in 2007 (and more than 14 percent moved down by two or more quintiles by 2007).
2. The report also examines the persistence/transience of millionaires and finds that this group of taxpayers, which has been the focus of millionaire surtaxes among some states and some tax policy proposals at the federal level, is highly transient. Roughly 50 percent of those taxpayers who were millionaires at some point during the 1999 through 2007 period attained this status just once. In contrast, only 6 percent of this group of taxpayers were millionaires in all nine years (see chart above).
3. Millionaires are a highly transient group of taxpayers, and it appears that the realization of capital gains is at least one explanation. This income source tends to be lumpy and periodic and is a major explanation for why taxpayers reach millionaire status.
12 Comments:
I buy tickets every week for the Super Lotto Jackpot to be a member of the 2010 millionaires.
I imagine lotto winners are transient millionaires.
Something seems wrong with this analysis. Are you only a millionaire if you pay tax on a million in income, or does holding property worth millions count?
I certainly do not know many millionaires who dropped out of the club.
this is based on income, not assets.
that said, the number of millionaires by net assets dropped quite a bit in 2008-9 though the overall number is still up from 2000 i believe.
http://blogs.wsj.com/wealth/2009/03/11/millionaire-population-plunges/
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millionaire status
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Because billionaires dislike upstart millionaires, billionaires go after upstarts and knock them back down quickly.
Please -- no new members wanted
!
Grazia
Well, that explains it then. You would have to be a fool or really unlucky to pay tax on a million dollars in income twice.
;-).
Anon @ 3:50 said: - "Well, that explains it then. You would have to be a fool or really unlucky to pay tax on a million dollars in income twice."
That's for sure, the first time could be an oversight, but after the rending of clothes and tearing of hair is over, the brain will kick in to ensure that such a catastrophe never happens again.
It's too bad so much time and effort must be spent on tax avoidance, rather than on the productive activity that produced the high income in the first place.
This argues that if we raise tax rates we need to bring back income averaging. Recall that under that system you paid taxes at the rate that your average income for 5 years qualified you for. That would take the lumpiness out of cap gains if you take away the lower rate. (Of course rates were up to 45 percent on cap gains at the time 1/2 the other tax rate)
Lyle:
Why not just average the tax rate instead.
Who says it had anything to do with productive effort? .I knew a Guy who made millions because his building project was canceled by the zoning board. He laughed all the way to the bank. He made more than if he had completed the job.
Sometimes you can lose millionaire ststus through gambling.
For exaample, William John Bennett (born July 31, 1943) is an American conservative pundit, politician, and political theorist. He served as United States Secretary of Education from 1985 to 1988. He also held the post of Director of the Office of National Drug Control Policy (or "Drug Czar") under George H. W. Bush.
Bennett ended up owing millions of dollars to casinos for playing long hours at high-stakes video poker games.
Bennet had made good money writing a book entitled, "The Book of Virtues: A Treasury of Great Moral Stories."
Since then, Bennett's wife has been quoted to the effect they are "financially solvent." Bennett says his "heavy" gambling days are over, and that he might bet on the Buffalo Bills in Super Bowl appearances.
Grant: "Average the tax rate:" You mean like extending the Social Security tax--a flat tax--to all income, rather than just the first 100k or so of payroll income?
I wonder if this will be true in a near decade without a housing bubble.
Benny the man:
YES
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