America is still the land of Opportunity

A number of pundits on the left cite rising “income inequality” as a cause for alarm (and justification of new government programs). A new treasury department study reveals these claims to be “hokum,” according to the Wall Street Journal.

Those claiming rising income inequality typically use tax returns – comparing the top 20% to the bottom 20% of tax returns in one year to those in some prior year. But critics of that analysis note, among other things, that the top 20% and bottom 20% aren’t the same from year to year: household income moves up and down, many workers leave the workforce, and new workers enter the workforce.

The new Treasury Department report attempts to look at the question of income mobility by following individuals over several years. They tracked tax-filers in 1996 through 2005 and found:

  • Median real incomes of all taxpayers increased by 24 percent after adjusting for inflation
  • Real incomes of two-thirds of all taxpayers increased over this period
  • Median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the high income groups
  • Roughly half of taxpayers who began in the bottom quintile moving up to a higher income group within 10 years.

(Full study and news release from the Treasury Department)