Corey Sheahan argues in his column today that expanding income inequality in the state of Wisconsin in the past 20 years does not matter. This is because, as Mr. Sheahan claims, income mobility is so great in Wisconsin that few are stuck in the bottom fifth of the income distribution from year to year. In addition, the bottom fifth are predominately immigrants, and it’s understandable that they start out poorer than average in a new country, but will get richer over time. If all these claims were true, perhaps income inequality would not be such a severe problem. Unfortunately, Mr. Sheahan did not back up his claims with any data, as the Center on Wisconsin Strategy report that I cited did. Speculative assertions that happen to fit a narrative mislead the public and they don’t do the problem of income inequality and a regressive state tax code justice. Fortunately, data that rebuts Mr. Sheahan’s assertions is readily available. A COWS report from 2002 found that “[b]etween 1969 and 1994, 41 percent of those in the lowest fifth [in 1969] were still there 25 years later and another 25 percent had only moved to the second fifth of the income distribution.” An analysis of more recent data in the New England Economic Review in 2001 found that income mobility has only been declining, not improving. The authors found that “slightly more than half of those households that were in the bottom or top quintiles of the income scale at the beginning of the [1990s] were in that same quintile at the end of the decade, and about three-quarters were in either the same or the next quintile.” The idea that America is “the land of opportunity” is obsolete, as our income mobility has been eclipsed by other countries. The United States scores worse on measures of income mobility than Canada, Scandinavia, Germany, and Great Britain. A 2007 article in the Atlantic Monthly cites a study that finds that “more than 40 percent of American boys born into the poorest fifth of the population stay there; the figure for Britain is 30 percent, for Denmark just 25 percent.” Even intergenerational income mobility is declining in the U.S. The chance that one will end up in the same income quartile as his or her parents increased from 20% prior to the 1990s, to 40% during the 90s. Some current estimates run as high as 60%. Finally, the whole point of making the tax code more progressive in the first place is to enhance income mobility. Under this sort of tax code, a smaller percentage of every additional dollar earned by the poor and middle class is taken by the government than each marginal dollar earned by the rich. This is an incentive for the underprivileged to work more and pull themselves up the income distribution, without giving them any direct government aid through social programs. So even if Mr. Sheahan was correct in his assertions, a more progressive state tax code would increase the income mobility that he mistakenly believes already exists. So why would he oppose that? The data clearly show that American society is growing more and more unequal with less and less income mobility between classes. This is not a problem that’s going to be solved by the blind optimism exhibited by Mr. Sheahan.
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Sheahan underrates income gap
April 29, 2008
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