TaxProf Blog

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

Thursday, December 7, 2017

The Richest 1% Now Own 40% Of The Country’s Wealth

Washington Post, The Richest 1 Percent Now Owns More of the Country’s Wealth Than at Any Time in the Past 50 Years:

The wealthiest 1 percent of American households own 40 percent of the country's wealth, according to a new paper by economist Edward N. Wolff [Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?]. That share is higher than it has been at any point since at least 1962, according to Wolff's data, which comes from the federal Survey of Consumer Finances.

From 2013, the share of wealth owned by the 1 percent shot up by nearly three percentage points. Wealth owned by the bottom 90 percent, meanwhile, fell over the same period. Today, the top 1 percent of households own more wealth than the bottom 90 percent combined. That gap, between the ultrawealthy and everyone else, has only become wider in the past several decades.

WaPo 1

This kind of extreme inequality is bad for the economy. The Organization for Economic Cooperation and Development, which represents a number of the world's richest countries including the United States, estimates that inequality has knocked nearly five percentage points off the economic growth in those countries between 2000 and 2015.

In high-inequality countries, people from poor households typically have less access to quality education. This leads to “large amounts of wasted potential and lower social mobility,” which directly harms economic growth, according to the OECD.

If you were designing a tax plan to reduce the extreme inequality in the United States, you'd probably try to find ways to redistribute some of the wealth from the richest households to the poorest ones. But the Senate GOP tax plan does precisely the opposite of that, according to the CBO: In the short term the richest households get the biggest tax cuts, while longer term the taxes of the poorest households actually increase.

Estate tax? Cut. Income tax rate for millionaires? Cut (at least in the Senate bill). Corporate tax rate? Biggest rate cut ever.

In the long term that probably means more of the pie for the super-rich, and less of it for everyone else.

(Hat Tip: Ted Seto.)

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Like other studies, this one excludes the present value of defined benefit retirement plans, a component of wealth which has been decreasing over recent decades except for government employees. The trends would look more benign if defined benefits were included. Public employees nearing retirement often have more than a million dollars in present value of defined benefits. Public safety employees can accumulate multiple millions in present value by age 50.

Posted by: AMTbuff | Dec 7, 2017 6:24:17 AM

AMTbuff - that's probably true. But why stop there? Like other studies, this one excludes all the unreported holdings in offshore accounts, which are heavily concentrated with wealthy households. The trend would look much worse if unreported wealth was included.

Posted by: Anon | Dec 7, 2017 10:00:49 AM

The problem is there are no studies that estimate the NPV of defined benefit plans but you have a good point.

Posted by: Sid | Dec 7, 2017 1:40:43 PM

Um . . . if fewer and fewer people have defined benefit pension plans (which is true), then continuing to exclude such plans from these kinds of analyses makes the trend toward increasing wealth disparities seem LESS extreme than it actually is.

Posted by: Math is Hard | Dec 7, 2017 1:40:49 PM

There is no pre-existing pie. The richest one-percent are, on the whole, the ones who make the pie that all of us wage earners and living off the public dole college professors eat from.

Posted by: brad | Dec 7, 2017 2:07:55 PM

"In the long term that probably means more of the pie for the super-rich, and less of it for everyone else."

Less of a pie that grows, or at least is supposed to grow?

That's a perfect way to look at relative vs. absolute inequality, a concept conspicuously lacking both in this article and pretty much every one on the topic...

Posted by: MM | Dec 7, 2017 6:33:19 PM

@Math: My point is that private sector employees these days have large 401k balances, which are counted, whereas decades ago these employees had vested defined benefits, which are not.

Posted by: AMTbuff | Dec 8, 2017 8:28:32 AM

Ah, has anyone taken a look at the stock market lately? Has anyone thought about where all that wealth created after 2009 ended up? Finally, has anyone given any thought to why the stock market has gone up so much? Is is possible the Fed had something to do with it?

Posted by: Dale Spradling | Dec 8, 2017 9:20:24 AM