Politics & Policy

Moving Up

EDITOR’S NOTE: The August 31, 1992, issue of National Review, set out to set the record straight about the Reagan administration’s economic record. We reprint the content of the issue here.

Myth: Reagan policies made it harder for the poor to advance.

“[R]ags to riches remains the economic exception, not the rule . . . If anything, economists say, the climb out of poverty has become harder in the last decade or two.”

-Sylvia Nasar, “Rich and Poor Likely to Remain so,”

New York Times, May 18, 1992

“The President says that we should avoid class warfare. Well, as the income numbers show all too graphically, we had class warfare during the 1980s. And the wealthy won.”

-Ted Kennedy, March 13, 1991

In fact, although the rich as a class have gotten richer relative to the poor, the mix of individuals that make up the “rich” and the “poor” is constantly changing. A banker’s son getting a stipend from dad will appear “poor” in the statistics, as will a retired couple who own their own home, or a laid-off executive living off his savings until something turns up. Similarly, a middle-class businessman will find himself in the top 1 per cent the year he sells his business.

Many individuals who were in the bottom half of the American population in 1980 saw their incomes rise to the top 20 per cent by 1990, while others–real-estate speculators and oilmen, for example–plummeted from the top group.

Two recent studies have measured economic mobility in the Reagan years. A Treasury study, done at the request of the Joint Economic Committee of Congress, traced the income reported by 14,351 taxpayers between 1979 and 1988. This sample was restricted to individuals who filed tax returns each of those years, thereby understating mobility since people are always dropping out of or coming into the system.

Nevertheless, Treasury found that 85.8 per cent of taxpayers who were in the bottom quintile in 1979 and climbed to a higher quintile by 1988. Only 14.2 per cent remained stuck at the bottom; 14.7 per cent rose to the top quintile. In other words, a person in the bottom quintile in 1979 was more likely to be found in the top quintile than in the bottom quintile in 1988.

Those at the top have no place to go but down. Accordingly, more than half–52.7 per cent –of the wealthiest 1 per cent in 1979 were gone by 1988. (Again, mobility is understated since deaths are not included.)

Not surprisingly, young workers percolate up at a faster clip than the elderly, most of whom do not work full-time. Census Bureau data show that 29.6 per cent of young adults (18-24 years of age) who were in the lowest quintile in 1987 moved to higher quintiles the following year. By contrast, those who drop to a lower quintile are like to be older retirees. As Representative Dick Armey put it, “As the poor get older they get richer, while as the rich get older, they retire.”

These lifetime trends are ignored by the CBO and the media. Isabel V. Sawhill and Mark Condon of the Urban Institute, however, recently tracked the incomes of individuals over a nine-year period (see chart)(?).

Miss Sawhill and Mr. Condon explain the pattern: “People who start at the bottom have nowhere to move but up, and are likely to do so as they become older, gain work seniority, and earn higher incomes. People who start at the top, some of whom may be there because of temporary sources of income like capital gains, have nowhere to go but down. This pattern, however, may be surprising to the general public, which has been led to believe that the poor were literally getting poorer over the past decade or two, and that the incomes of the rich were skyrocketing. This is simply not true.”

The static model used by CBO and the media to “prove” that the poor got poorer never allows that the bottom 20 per cent filled up with younger, inexperienced workers during the Eighties–many of them immigrants happy to be here, many of them American citizens who couldn’t find work during the Carter stagflation. Nor does it allow that the larger amount of income going to the richest 20 per cent reflects a higher floor for entering that group rather than an increase in income for the individuals who were in that group at the beginning of the period.

Mr. Rubenstein is NR’s economic analyst.

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