Income Mobility in the United States: New Evidence from Income Tax Data

Abstract

While many studies have documented the long-term trend of increasing income inequality in the U.S. economy, there has been less focus on income mobility and the potential opportunity for upward mobility. Data from panels of individual income tax returns suggest that there was considerable income mobility in the U.S. economy over the 1987-1996 and 1996-2005 periods. Consistent with prior mobility studies, the data show that over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period. By contrast, those with the very highest incomes in the base year were more likely to drop to a lower income group and the median real income of these taxpayers declined in each period. Economic growth resulted in rising incomes for most taxpayers over both time periods. Initial position in the income distribution and changes in marital status were found to be associated with the largest upward or downward movements through the income distribution.

Household Incomes in Tax Data: Using Addresses to Move from Tax Unit to Household Income Distributions

“…The standard administrative tax data excludes the nearly 15 percent of adults and 13 percent of household heads who do not file a tax return and are not claimed as dependents each year (Auten and Gee, 2009;Molloy, Smith, and Wozniak, 2011). These non-filers are not missing at random, and are instead primarily concentrated in the lower-tail of the distribution -which means that researchers using tax return data observe only a truncated version of the income distribution.…”

“…Piketty and Saez, 2003;Auten and Gee, 2009), the CDW data contains tax returns for all individuals rather than subsampling select returns. This universal coverage ensures that all individuals within households appear in our data, which is a necessary condition for aggregating observations to the household level.…”

Inequality and Opportunity: The Relationship Between Income Inequality and Intergenerational Transmission of Income

“…The conclusion of these studies is that income volatility cannot explain much of the change in inequality. For instance, Auten and Gee (2009) show that, though there was considerable variation within individual incomes between 1996 and 2005, 8 the degree of relative income mobility was roughly unchanged from the prior decade (1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996). Thus, if we could compute the Gini coefficient or some other inequality indicator for permanent income, we would find it to be lower than the one based on yearly income data; however, it does not seem that it would point to a different trend from that estimated with yearly income data.…”

The Great Overestimation: Tax Data and Inequality Measurements in the United States, 1913–1943

“…The Piketty–Saez empirical techniques have invigorated the study of inequality as a historical topic and stimulated additional efforts to improve their results (Auten and Splinter ; Auten, Splinter, and Nelson ; Kopczuk, Saez, and Song ; Larrimore, Mortenson, and Splinter ; Mechling, Miller, and Konecny ; Reynolds ). Many of the works building upon the efforts of Piketty and Saez emphasize that tax‐derived estimates of distributional shares are highly sensitive to the nature of the tax system.…”