Do the Rich Really Get Richer and the Poor Get Poorer?

by Burt on April 26, 2012

We are hearing more rhetoric of “class warfare” this year than in any presidential campaign in recent memory. But “soak the rich” proposals have been part of U.S. history ever since President Woodrow Wilson fought to raise the top marginal rate on rich people to 77% in 1918. Yes, these progressive politicians sometimes succeed for awhile, but Americans always come back to lower, fairer tax rates. The high Woodrow Wilson tax rate, for example, was down to 25% within a few years.

In other words, the forces of common sense on tax rates have always prevailed–at least so far–in U.S. history. Why? Because most Americans know that rich people don’t keep others from getting rich. In a free society, high upward mobility is always possible. The Federal Reserve Bank of Dallas, for example, studied low income households from 1975 to 1991. Of those people who were “poor” in 1975, fully 98% were no longer poor in 1991. Also, three-fourths of those people who were “near poor” in 1975 had moved into the middle or upper group of wealth holders by 1991. Hard work, increased education, and even luck helped most of the poor move into the middle class–or even higher–from 1975 to 1991.

What’s more, many of those who were rich in 1975 had fallen by 1991. Poor people moving up and rich people moving down has always been part of the American past. In my research to earn a Ph.D. in history, I studied the top 40 wealthy families in 1880 in the new industrial city of Scranton, Pennsylvania. In 1920, only nine of those forty families had children who were still in Scranton’s “upper” class. The rest were downwardly mobile–they didn’t work hard and they took money for granted–they knew they could live well through inherited wealth, and so they often lived lives of leisure, not lives of accomplishment.

Meanwhile, many immigrant families came to Scranton penniless in 1880 and worked their way up to middle and, in some cases, into upper class status by 1920. I describe this upward and downward churning in Scranton in my book The Myth of the Robber Barons.

After looking at the data, I concluded that most of the time you have to work to get ahead, and keep working to stay ahead. Most Americans know that is true, and they don’t buy the argument that giving government more power to take stuff from rich people will somehow help poor people. It only increases the federal bureaucracy and, ultimately, the national debt as well. And 2012 is no time in our history to move further in that direction.

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