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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, March 4, 2013

Wealth Inequality in America

(Hat Tip: Len Burman.)

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I had to stop watching, it wasn't very informative. What would be informative would be a video on what constitutes "wealth" in the "Harvard Professor's study" and what the people surveyed consider "wealth".

We don't have a wealth tax and, therefore, no consensus definition arrived at over decades by hot disputes, judicial & administrative intellectual firepower, bipartisan legislation etc. The closest thing is "fair market value", which is what a willing buyer would pay a willing seller etc.

I wonder if the professor created his own definition larded up with intangibles and highly speculative values while those surveyed applied the more conventional definition.

Posted by: Yo Gabba Gabba | Mar 4, 2013 3:00:43 PM

Yo Gabba Gabba,

Wealth is almost certainly networth with assets at fair market value and debts at book value. The data source on wealth inequality is most likely the Federal Reserve's Survey of Consumer Finances.

You can see the definitions in SCF here:

The definition isn't "larded up with intangibles and highly speculative values" since it is self-reported by survey respondents. It certainly includes "intangibles" such as stocks and bonds and bank accounts and business equity--which are not physical--but no definition of wealth that would pass the laugh test could exclude them.

The SCF actually understates wealth at the high end because insurance is measured at cash value (redemption value), which is lower than its net present value, and the upper middle class spend a lot more on insurance than the middle class and the poor.

The best critique you could make of these numbers is that defined benefit pensions and social security benefits don't show up as assets because households don't own them, but they do provide some income and have some value.

But even then, it's not entirely clear that bringing pensions onto the balance sheet would reduce inequality, because of generous deferred comp packages at the top of the distribution.

And it's also doubtful pensions could be brought on at 100 cents on the dollar, given the risk of employer insolvency or changes in government policy that would reduce retirement benefits.

Posted by: Anon | Mar 5, 2013 6:38:38 AM

The video does a good job of identifying the high profits that have accumulated to the thinnest slice of the the American population (i.e., the billionaires). The big disconnect comes when people wish to motivate redistributionist policies based on this fact. Interestingly, few of the policies on offer will redistribute the wealth of this highest slice. Will Warren Buffet's or Bill Gates' or Mark Zuckerberg's or George Lucas' taxes be significantly higher under Obama's proposed tax increases? Unless step-up basis on death, deductibility of charitable giving, treatment of charitable gifts of appreciated assets, or corporate taxes are changed, these great fortunes will not be taxed. Is it even desirable that these great fortunes be smaller? Who really believes that the US Government can invest/consume/direct these funds better than the Bill and Melinda Gates Foundation or the corporate sector? Everyone dies eventually and wealth dissipates or recycles. Focussing on the top sliver to motivate higher taxes on the highest quintile seems disingenuous.

Posted by: Andy G | Mar 5, 2013 9:26:07 AM


If we taxed Bill Gates more, perhaps we could tax everyone else less and keep the government the same size.

I'm willing to bet that the middle class and even the upper middle class need their money a whole lot more than Bill Gates, or the Waltons or the Kochs, or the Scaife's or Mellons or Thiels.

Posted by: Anon | Mar 6, 2013 8:23:06 PM