On paper, it appears the Treasury Department has managed to analyze income mobility inside out and backwards to come to the conclusion the poor are jumping up the income quintile ladder by leaps and bounds, while the rich are losing ground.

The study concluded there is considerable income mobility of individuals and the degree of mobility is basically unchanged from prior periods.

Key findings are:

1. More than half (minimum 55 percent) moved to a different income quintile during the period of time analyzed (1996 – 2005)

2. Most taxpayers had rising incomes due to economic growth.

3. After adjusting for inflation, median incomes increased by 24% for all taxpayers.

4. Real incomes of 2/3 of all taxpayers increased during the 1996-2005 period.

5. Median incomes of those in lower income groups increased more than median incomes of those in higher income groups.

6. Less than ½ (40 percent minimum) in the top 1% in 1996 were still in the top 1% in 2005.

7. 25 percent those in the top 0.01% in 1996 remained in the top 0.01% in 2005.

Our initial reaction to this report is, if you start at the bottom there's only one direction you can go. If you're at the top, there's no more room to go. What to look for is whether or not the income distribution has changed. Is it as unequal now, or worse, than it was before?

"The study, to be released today, is a careful, detailed piece of research by professional economists that avoids political judgments."

So, how did they do it? How did they manage to come up with a report that contradicts what is a known fact, that the economic policies put forward by this administration have dramatically increased the wealth of the rich?

1. The 1996 tax return information includes data from late filed returns from both 1997 and 1998, while the 2005 tax return figures do not contain late filed returns. The significance here is late filed returns are generally far more complex and are filed on behalf of high-income taxpayers. If you include the high end tax returns in 1996, but leave them out of the 2005 tax return figures, the numbers are obviously distorted. These late tax returns generally represent 1-2 percent of the total tax returns filed.

2. The U.S. Treasury report of November 13, 2007 does not use the same basis for cash income as prior reports prepared by the Census Department, Congressional Budget Office or Treasury Department; therefore accurate comparisons between the reports cannot be made.

A significant addition to the U.S. Treasury report of November 13, 2007 is Social Security benefits. Following is a listing of what this report is taking into consideration as 'income'.

3. The Treasury Report states Income is adjusted for inflation using the Consumer Price Index Research Series Using Current Methods (CPI-U-RS) and follows with a table indicating cash income levels for income quintiles.

A cursory review of this table basically tells you everything you need to know about this report. The 1996 income cutoff for the top 1% was $284,603, but increases by $179 thousand dollars for 2005 to $463,615.

If you continue to raise the bar on what is considered the top income in this country, of course taxpayers are going to fall into a lower category. The income level cutoff point for all income quintiles indicated has increased at rates far exceeding inflation.

Although Mr. Buffet appeared as a witness to present his views on the Federal Estate Tax, he also presented an excellent case proving the gap between the super rich and middle class has widened, by comparing the increase in the Forbes 400 list with the median income increase for the average American over a 20 year period of time from 1987 to 2007.

He stated that in 1987 it took $220 million to make the Forbes 400 list, while in 2007 it took $1.3 billion to make the list, or a 6-1 increase. While the total wealth of the listing was $220 billion in 1987, it ballooned to $1.54 trillion in 2007 or a 7-1 increase, basically due to tax law changes benefiting the rich.

Buffet then compared the median income of the average American worker - $26,061 in 1987 to $48,201 in 2007 and stated the increase in wages for the average American was almost exactly the same as the increase in the CPI (Consumer Price Index) during that same period. He further went on to say that while the average American worker has been on a treadmill the super rich have been on a spaceship.

Using the CPI inflation formula to calculate you'll note the current median income is actually higher by about $875.00.

$26,061.00 Salary = 2007 Salary x (1987 CPI / 2007 *Est. CPI)

1.816 = $47,326.77 x (113.6/206.3)

The fact the median income is actually slightly higher than the inflated CPI by $875.00 is a sad state of affairs, due to the fact that increases in food and energy prices are not included in consumer price index calculations.

In other words the median income of American workers over the past 20 years has not even kept up with inflation, when food and energy costs are included.

 

Richard E Walrath and Patricia L Johnson are co-owners of the Articles and Answers News and Information sites.  Articles and Answers 2007 and Articles and Answers

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