Hooray for the rich. Ted Turner's quixotic gift of $1 billion to the U.N. highlights the fact that the U.S. economy has become an amazing wealth machine, minting millionaires at a prodigious 15%-20% annual growth rate. Last year, nearly 100,000 families reported $1 million or more in income to the IRS. That's just the tip of the iceberg--only declared income, not the vast wealth in stocks and bonds, privately owned businesses, or real estate. Thanks to the rise of the information economy, a 900% jump in the Dow Jones industrial average since 1982, 40l(k)s, and the spread of options, there are millions of millionaires in America. Indeed, a sizable slice of what was the middle class is ascending to the heretofore rarefied category of "rich," expanding that group dramatically.
The new rich are a different crowd than the millionaires of recent decades. They are younger. In an era of fast technological change, as this one is, the young catch the wave earlier than anyone else. A big percentage comes from the growing information economy, where stock options and initial public offerings have spread enormous wealth. They are more likely to live on the West Coast than where wealth has traditionally been concentrated, the East Coast and Midwest. They are more likely to give to environmental, educational, and technological causes than to the arts or humanities. They are also simply richer. There are now nearly 150 American billionaires, up from 40 just a few years ago.
But what is their impact on society? For starters, the nation can thank the rich for balancing the budget. That's right: The top 5% of taxpayers pay nearly half of all income taxes, the largest category of revenue for the federal government. This has sent interest rates lower, boosting corporate profits, capital spending, and job creation. It has also helped the stock market retain momentum, since even lofty price/earnings ratios look good when rates are falling.
The biggest social impact may be in philanthropy. Turner's decision to give his money to specific U.N. agencies for specific causes is typical of the new hands-on charity characteristic of the Gateses, Soroses, Annenbergs, and other big givers who built their own empires and believe in managing their money's impact on society. Old smokestack money often gave blank checks to foundations or schools. New Economy money is more focused in its giving and more demanding in concrete results.
But overall, New Economy millionaires have not been particularly generous. The growing cadre of newly minted millionaires has not produced a corresponding increase in charity. Total giving as a percentage of personal income has stayed a relatively constant 1.83% for decades. From an economic point of view, it's certainly better for entrepreneurs to continue expanding their businesses and generating jobs than spending their time on giving their money away.
Yet with government downsizing, the needs of civil society are great and growing. There are charter schools to be built, math and science teachers to be trained, wetlands and forests to be saved, research on aging to be supported, technological literacy to be spread. Only in America, with its enormous opportunities and upward mobility, could today's fortunes be made so swiftly. It's payback time for the new rich.