There’s Rich, Then There's the 0.01%
The news media seem to have discovered something that economic wonks and number crunchers have understood for quite a while: How much richer the super-rich are than everyone else, including the merely rich. Mathematically speaking, the difference between poor and rich is much smaller than the chasm separating the well-off from the stupendously wealthy.
We aren't discussing income inequality, Obamacare or stagnant wages. I am aware that the poor in this country have no discretionary income, and that there are many disadvantages to being lower income in the U.S.: bad health care, poor nutrition, lower educational opportunities, limited economic mobility, even a shorter lifespan.
Today’s chart is about something else.
At least statistically, the differences between the uberwealthy and the merely well-off can be traced to three issues:
1. The rise of finance: The wealthiest 0.01 percent include many folks from the world of finance. The financial collapse didn't have a very long lasting effect on this. You can argue about the impact of hedge-fund billionaires in a variety of areas, but this much is beyond debate: They have thrown off the bell curve when it comes to income distribution among the very wealthy.
2. Stock ownership: “The richer you are, the more likely your riches come from stocks, not salary,” as Derek Thompson of the Atlantic wrote. The very wealthy aren't so much well-paid as well-optioned. Some are entrepreneurs who built vast new businesses; others are chief executive officers and other senior executives who run major corporations. The bottom line is that big stock-option packages are major contributors to vast riches.
3. Taxes: The superwealthy pay lots of taxes in actual dollars. On a percentage basis, though, not so much. Indeed, the wealthier you are, the more likely the bulk of your income comes from capital gains. These are taxed at about half the rate of wages and salary for a comparable high earner. According to the Internal Revenue Service, the wealthiest 400 people derived half their income from capital gains. Those in the top 0.01 percent not only earn much more than the 1 percent but also get to keep much more of what they earn.
For some reason, I want to quote Mel Brooks from History of the World, Part 1: “It's good to be the king.”
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(Barry Ritholtz writes about finance, the economy and the business world for Bloomberg View. Follow him on Twitter at @Ritholtz.)
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