Never, Ever Trust What the IRS Says

November 4, 2011

That’s our friend Paul Krugman talking about us, presumably, and the sources we use to show there is actually a great deal of income mobility, both up and down the economic ladder. For instance, the table below, from this report based on IRS data, shows that about 60 percent of households that were in the lowest income quintile in 1999 were in a higher quintile in 2007. About 40 percent of households in the top quintile moved to a lower quintile over this 9 year period.

Yes, the biggest chunk moved to the next quintile over, but about 1/3rd of those in the lowest quintile moved to the middle quintile or higher. About 6 percent moved all the way from the lowest to the highest quintile!

The St. Louis Fed found similar results.

Based on the same data, the first graph below shows that millionaires don’t stick around too long – about half for just one year. It seems Steve Martin was on to something, although income fluctuations appear to be driven more by capital gains than crazy inventions.

Lastly, based on another set of IRS data, the second graph below shows that it is even less likely that one can remain among the top 400 income earners. Over the period 1992 to 2008, about 73 percent make the list for just one year. Only 4 remain among the top 400 for all 17 years.

1999 Income Quintile/Percentile

2007 Income Quintile/Percentile

Lowest

Second

Third

Fourth

Fifth

Total

Top 10%

Top 5%

Top 1%

Lowest

42.5%

25.1%

16.3%

10.4%

5.7%

100.0%

2.2%

0.8%

0.1%

Second

32.2%

34.7%

17.3%

10.8%

5.0%

100.0%

1.7%

0.7%

0.1%

Third

14.4%

26.0%

32.8%

17.8%

8.9%

100.0%

3.4%

1.2%

0.1%

Fourth

7.7%

10.7%

25.7%

37.7%

18.3%

100.0%

6.2%

2.2%

0.3%

Fifth

3.1%

3.8%

7.5%

23.3%

62.3%

100.0%

36.5%

20.0%

4.3%

Top 10%

2.7%

2.4%

4.4%

13.3%

77.1%

100.0%

56.7%

34.8%

8.0%

Top 5%

2.4%

1.9%

3.0%

8.2%

84.5%

100.0%

72.7%

54.2%

14.7%

Top 1%

2.3%

1.4%

1.4%

4.5%

90.5%

100.0%

85.5%

78.3%

44.6%

Note: Computations by author from the 1999-2007 IRS SOI Individual Tax Panel.

Follow William McBride on Twitter @EconoWill


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