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Income Mobility In U.S. Decreased In Recent Years: Boston Fed Report

Income Mobility Us

First Posted: 11/07/11 12:02 PM ET Updated: 11/07/11 01:39 PM ET

The American Dream, that well-worn belief that anyone can pick themselves up by their bootstraps, just isn't what it use to be.

Income mobility, or the ability to move from one class to another, declined by a "statistically significant degree" between 1995 and 2005, especially compared to the 1970s and 1980s, when mobility hit its peak, according to a recent study from the Boston Federal Reserve. Families were more likely in recent years to stay within their income class than they were decades ago, regardless of if they start out poor or rich.

That means the poor and middle-class are having trouble moving up, while the rich are staying rich.

And income mobility isn't the only promise that's being whittled away. Though homeownership is at its lowest level since the Great Depression, most Americans still consider it part of the American Dream.

The study's findings have especially sour implications for the nation's poor, as the gap between them and rich continues to widen. The top 1 percent of American earners saw their incomes grow 275 percent between 1979 and 2007, a recent study from the Congressional Budget Office found. During that same period, incomes for those in the bottom fifth of earners grew by only 20 percent.

For many, paychecks have only gotten smaller during the recovery. The national median income fell last year for the second year in a row to $26,364 -- the lowest level since 1999. In contrast, millionaires currently control nearly 40 percent of global wealth and in the U.S. the 400 richest Americans have more wealth than half of all Americans combined.

That distance between the rich and the poor has most Americans concerned. Protests raging in Zuccotti Park and around the world are in part aimed at highlighting growing income inequality. In addition, more than half of Americans consider income inequality a problem, according to a recent poll conducted by The Hill.

Recent research validates such concern. Rising income inequality could hinder a broader U.S. recovery, according to a study released last month by the International Monetary Fund.

One way to address the widening income gap could be through tax reform. A more redistributive tax system may have increased mobility in the 1980s, but its impact has since work off, according to the Boston Federal Reserve study.

Famed billionaire investor Warren Buffet proposed a change to the tax system in August that would make millionaires pay taxes at the same or higher rate than middle-class earners. Nearly three-quarters of Americans support the so-called "Buffett rule," according to a DailyKos poll released in September.

If Republican presidential candidate Rick Perry had things his way, politicians wouldn't concern themselves with income inequality when reforming the federal tax code. The Texas governor himself told The New York Times last month that he doesn't care if his own tax plan increases the wealth gap.

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Filed by Jillian Berman  |