In the context of current popular sentiments about the rich getting richer and poor getting poorer, it is interesting to look at how long millionaires actually stay in that category. Will you be a millionaire for life if you start making over a million dollars a year? Is the super-rich club an exclusive zone with very little turnover? A look at the data suggests that it isn’t — that, in fact, most millionaires are not millionaires for long. The majority of people in the top 0.17 percent of the income distribution (millionaires) face substantial downward income mobility over time.
This week’s chart looks at the income dynamics of taxpayers with millionaire status using data calculated by the Tax Foundation, which followed the same Internal Revenue Service tax returns from 1999 through 2007. The data represent 675,000 taxpayers who were millionaires at some point during this period; this number serves as the benchmark for the percentages of millionaires who remain millionaires.
After the first year year, roughly half of those who were millionaires (reporting over a million dollars in adjusted gross income) at some point between 1999 and 2007 were still millionaires. After two years, 15 percent — roughly 102,000 millionaires — retained that status. This decreasing rate of remaining millionaires persists, and only about 6 percent — roughly 38,000 millionaires — were millionaires for all nine years.
Interestingly, things look rosier at the bottom of the income distribution. That same Tax Foundation study also shows that about 60 percent of households that were in the lowest income quintile in 1999 were in a higher quintile in 2007, and about a third of those in the lowest quintile moved to the middle quintile or higher. In other words, while it is difficult for one to rise from rags to riches, and while it may be harder now than it was in the past, there is still real upward economic mobility in the United States. (Mark Perry, over at the Enterprise Blog, reported back in March on similar data from the Federal Reserve Bank of Minneapolis.)
For more on this topic, I would suggest listening to this EconTalk podcast: George Mason University’s Russ Roberts talks with University of Chicago economist Stephen Kaplan about the composition of the richest 1 percent and 0.1 percent. Kaplan notes that, when you only look at data that stops in 2007, it obscures the fact that the wealthiest 1 percent took a sizeable hit after the financial crisis — their share of income went down to 17 percent in the last two years. He says:
In the last two years, it’s way down. Recessions are bad for the rich. If you care about inequality per se, recessions are great. That appears to be true, so in 2009 the top 1% I calculated at 17.6%. I’ve seen other calculations a tad under 17%, but it’s basically gone from 23.5 to 17. What’s interesting about 17 is that inequality in 2009 is actually lower than it was during any year of Bill Clinton’s second term.
The 60-minute podcast is really worth listening to. It covers issue like Kaplan and Josh Rauch’s paper on the composition of the top 1 percent (e.g., “what proportions come from the financial sector, CEOs from non-financial corporations, athletes, lawyers and so on,” and “how the incomes of these different groups have changed over time”). The podcast ends with a discussion of the financial crisis and compensation in the financial sector.