Sunday, June 10, 2012

Top 1 Percent Holds More Than Third of Wealth

Previously published in the Terre Haute Tribune-Star 10June 2012

My last essay focused on growing income inequality and its demonstrated relationship with a range of social ills. This month I want to focus on wealth inequality. All statistics are taken from the work of Edward Wolff.

Income (conventionally defined) is money received in the form of wages, salaries, tips, alimony, welfare, interest and some dividends. For the most part, income is derived from employment —work. And for a brief period last fall, the press and the political bloviators discussed the graph showing the increasing concentration of income among the top 1 percent compared to the 99 percent.

Wealth is one’s (or one household’s) net worth, the sum total of cash on hand, the value of real estate, assets, stocks, bonds, and ownership of private business(es) minus debt. For the vast majority of people, the 90 percent, one’s home is their primary financial asset.

Whatever people think or believe about the state of income inequality, wealth inequality is far more striking. Wealth, since the 1970s, has become increasingly concentrated at the top. The most recent data on the distribution of wealth is from 2007 (new data should come out in 2013) and it shows that the top 1 percent owns 34.6 percent of the total wealth (it was in the 20s in the early 1970s). In contrast, the share of the top 1 percent of income earners was “just” 21.3 percent in 2007.

“Millionaire” still retains high status in the U.S. Despite popular views that millionaires are common, according to IRS figures for tax returns filed in 2009, only 0.1 percent of tax returns filed (among 235 million) had incomes of at least one million dollars. It is one thing to earn a million a year, another to have total assets of at least one million, and in 2007 just over 6 percent of households had net worth that high. Indeed, when we examine the bottom 40 percent of households, their mean net worth is just $2,200.

Wealth differs from income in terms of the social power it confers. Wealth is transferable. A job/career is not. If I inherit a business, I can hire my relatives, including my children, to work the business and can eventually pass the business on to them, but not my job. As I have written in these pages before, the employment relationship is a significant one and it is asymmetrical with respect to social power.

Many argue that taxes on wealth should be reduced, if not eliminated. The argument goes that those who obtain money through their wealth (by investing in stocks, businesses, etc.) are risking their property and deserve to reap the rewards and should not be punished with a high tax rate. Hence, the 15 percent tax rate on capital gains (the selling of an asset and making money on it). Too bad I can’t auction off my job to the highest bidder when I decide to vacate it. My income is taxed at 28 percent. If I could sell my job, it would be taxed at 15 percent.

The amazing thing about risking one’s capital in business is that it gets others working for you. In the private sector, a job is not a gift or something miraculous that rich folks provide when they are happy, as the current rhetoric of “job creator” practically suggests. Business owners don’t create jobs to be civic-minded. Rather, businesses create jobs as a way to make money. Anyone who works in the private sector makes money for the company or provides some kind of valuable service or their job disappears. Unless a business owner has poor business skills, they are only going to create a job when there is a chance to make money for the business.

In 2007, the top 1 percent owned 49.3 percent of all stocks and mutual funds, 60.6 percent of all financial securities, 38.9 percent of all trusts, 62.4 percent of all business equity, and 28.3 percent of all non-home real estate. In short, they owned 49.7 percent of the productive assets in the United States.

Work in the private sector and it’s a 50-50 chance your job helps enrich someone in the top 1 percent.
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