7 ms·

Top 1% of income is a red herring too - Top 1% of wealth is what everyone is focused on. Top 1% of household wealth is more like $10M in net worth. Almost nobo

Top 1% of income is a red herring too - Top 1% of wealth is what everyone is focused on. Top 1% of household wealth is more like $10M in net worth. Almost nobody earning $500k will ever amass $10M in net worth due to income taxes (vs. capital gains for those with substantial wealth) and living expenses. It really is a separate stratosphere. https://equitablegrowth.org/wp-content/uploads/2019/03/table1-1.png https://equitablegrowth.org/wp-content/uploads/2019/03/table...

pcurve 7y ago
i find it interesting that top 10%, 5%, 1% wealth are inversely proportional... 1 mil, 2mil, 10mil. Top 1%. Interestingly, 0.1% 'only' owns $45mil, and 0.01% owns $111 mil. It sounds rare, until 1 out of 10,000 own $111 mil.
- programmertote 7y ago
  I think it's household, so maybe multiply by the number of average people in a household (say 2.6 is US average household size, so we can say 1 out of 26K owns $111m)?
programmertote 7y ago
I'm a bit confused as to what 'tax unit' mean here. Is that the amount of tax (in monetary unit like USD) one is supposed to pay if s/he hits certain percentage of wealth class? Thanks in advance for the reply!
- mikeyouse 7y ago
  I'll just copy/paste from the source of the chart, but a tax unit is everyone on a single tax return where a household is everyone that lives in a house. So if an elderly parent who pays their own taxes moves into their adult children's household, that property would consist of 1 household but 2 tax units. The net worth of the household would increase, even though the net worth of those two tax units stayed the same. > "For most people, their tax unit and household are the same. But there are cases where a household would include multiple tax units. When an elderly parent moves in with an adult child with kids filing taxes separately to form a three-generation household there would be multiple tax units exist in one household. The same is true when a child moves back in after college or an unmarried couple moves in together. These are groups that we probably want to think about together because they rely on each other economically. On the other hand, a group of unrelated adults living together as roommates would also count as a household." > We might prefer tax units to households for income trend analysis because household structure is not independent of economic circumstances. For instance, adult children move back in with their parents (Gallup reported that 14 percent of 24 to 34 year olds lived with their parents in 2013 and a Pew Research Center study showed this to be increasing). Similarly, homeowners sometimes take in boarders for economic reasons. In each of those cases, the tax-unit data captures the deteriorating economic situation associated with these types of living arrangements. > In contrast, household data captures more earners under one roof, which increases household income. Imagine a group of three graduate students living together where each makes $25,000. They would show up as three different tax units but one household making $75,000. Now image that they all got $5,000 raises and decided to get places on their own. This would show up as a 20 percent increase in their incomes by tax units, but their household incomes would have dropped by 60 percent.
bb2018 7y ago
This is clearly not true - if you are making that much and are a constant (but not even especially frugal) saver you will have 10M by the time you retire. The top 1% includes people of all ages - including people collecting paychecks their whole life - not just people who are in their 30s. Of course, in 20 years 10M will not mean as much, but nonetheless it is important to remember 20% of the population is at or near retirement age. https://www.nerdwallet.com/investing/retirement-calculator https://www.nerdwallet.com/investing/retirement-calculator
- cm2012 7y ago
  Just because it's possible doesn't mean it's common. So OP is correct.
  - mikeyouse 7y ago
    I ran the math -- If you are a married couple who earn $500k/year in California, you'd have to save 40% of your post-tax income at a 7% rate of return for 27 years to accumulate a net worth of $10M. It's exceedingly rare to make that much money for that long of a period of time.
    - dillonmckay 7y ago
      And no inflation.
      - WillPostForFood 7y ago
        The 30 year inflation adjusted return on the S&P 500 is 6%, and if dividends are reinvested, 8%. Retrospectively, a long term 7% return would be unremarkable. I wouldn't bet those numbers will be quite as strong going forward.
    - stephencanon 7y ago
      It's not the norm, but it's also not especially rare. A doctor married to a lawyer (or a big tech engineer) will easily clear that for most of their careers.
deleted 7y ago
[deleted]
metacritic12 7y ago
Isn't wealth the red herring, and income the proper measure? After all, the median (50%tile) wealth is nearly zero. Amongst those with zero wealth, the top income earners clearly have better lives than the low income earners, since the top income earners can consume more. The ultimate measure of resources is how much a person can consume a year. Income is equivalent to what you can steady-state consume. Wealth is just what you happened to save up to that point in time. Since the wealth gap is larger than the income gap (since wealth is saved past income), the wealth gap tends to be pointed out by people who want to overemphasize inequality.
- alexkcd 7y ago
  No, because 10M generates a steady return in a growing economy. So the steady-state consumption of someone with a net worth of $10M is much greater than someone with $0, all other things (e.g., income) being equal.
- bobbydroptables 7y ago
  A person with $10M in wealth should be earning $500k a year taxed at capital gains rates. This person does not and will not ever live like a mere mortal (unless for show or sport). Assuming he's not an idiot, the $10M guy would have to try reasonably hard to become broke. A person earning $500k/yr is reasonably likely to be a normal guy--maybe semi talented business person or tech exec paying regular income taxes (at least partly) that could quickly become broke or at least become a mere mortal again if he stopped working. I don't really have anything against this guy. He's not a pervasive driver of inequality. He's not at the tier of wealth where you're buying influence. He's likely stuck in an expensive COL place. Unlike Mr. $10M, he probably hasn't carefully shielded his funds from divorce, family, etc. >Wealth is just what you happened to save up to that point in time. Nobody just "happens to save up" $10m. You either inherited it, lucked into it or grinded for years or (more likely) decades with the express aim of a payday (and you got lucky enough to get one).
- thatfrenchguy 7y ago
  > After all, the median (50%tile) wealth is nearly zero Median wealth in the US ~97k. It’s quite stunning one could think a society would work with the 50-percentile being zero.
onlyrealcuzzo 7y ago
Exactly. For example, if you have a $10M net-worth, according to Gabriel Zucman & Thomas Piketty, you get higher returns on average than the little guy. Not sure the exact number, but let's say an ~8% return on average (believe it's higher). You would make ~$800K a year in "capital gains" and pay $133K in federal taxes. If you earned $500k in income, you'd pay ~$164K in federal taxes. You'd pay another ~$35k+ in states most people live in for about a 39.8% tax rate. Not to mention, your employer is paying another 5% in payroll taxes to employ you. So, really, it's a 44.8% tax. But if your income comes from "capital gains" instead of working, you'd pay less than half that percentage in tax -- at 16.25%. Why is there a distinction between "capital gains" and dividends and fixed income? Because only the very wealthy get most of their income from capital gains. Even people with $1-5M in wealth... they're mostly the people that worked really hard and still got a little lucky with their investments. They're almost all old. They've paid off their house. So... 1) most of their wealth is tied up in their house, and 2) most of what's left over is tied up in fixed income like bonds -- which are taxed as "income" and not "capital gains".
- gitgudnubs 7y ago
  Your calculations are based on an erroneous model. Corporate profits are taxed twice. The effective tax rate of dividends can be as high as 39.8%. I'm not sure what typical numbers are, because I couldn't find 2018 data, and 2017 data predates significant tax cuts.
  - onlyrealcuzzo 7y ago
    Did you read my comment? Dividends are considered income! Capital gains is a different thing, and the distinction exists largely because only a small subset of the population has the ability to make a lot of money from capital gains -- because, by its nature, it requires a lot of capital...
    - vonmoltke 7y ago
      Qualified dividends are taxed as capital gains. Capital gains are income and reported on Form 1040. What they are not is "ordinary income" subject to the income tax table. A person with $700k on capital gains is well inside the top 1% of income.
gitgudnubs 7y ago
A single person in San Fransisco with an income of $500,000 and the standard deduction has a takes home $288,646. A single person in San Fransisco has a cost of living of $1125.83 without rent, according to numbeo (whatever that is). Median rent in San Fransisco is $3700 for a one bedroom. That leaves a measly $230,736 of post-tax, post-living expenses money. Assuming this person does nothing more than hide a monotonically increasing pile of cash under a mattress, it takes just over 43 years to amass $10,000,000. Presumably this financial cretan started working right after college, at the age of 22. This means they've acquired the full sum at the age of 65, which is not an uncommon retirement age. Cuts close, but checks out.
- viscanti 7y ago
  I don't think many people should expect to get into the top 1% of assets by just sticking money under a mattress. Presumably most would invest it and expect an average rate of return of 7% or so from decades of investing. Eventually the investment grows more from compounding than new income.
  - novok 7y ago
    The compound interest of saving 19k/month @ %7/yr rate results in 10 million after 21 years, which is under half of 43 years.
    - taneq 7y ago
      And you can get 7% per annum on a savings account... where, exactly? Back in 1985 via a time machine, maybe?
      - jki275 7y ago
        S&P 500 index fund will probably average you around 7%.
        MR4D 7y ago

pcurve 7y ago

i find it interesting that top 10%, 5%, 1% wealth are inversely proportional... 1 mil, 2mil, 10mil. Top 1%. Interestingly, 0.1% 'only' owns $45mil, and 0.01% owns $111 mil. It sounds rare, until 1 out of 10,000 own $111 mil.

programmertote 7y ago
I think it's household, so maybe multiply by the number of average people in a household (say 2.6 is US average household size, so we can say 1 out of 26K owns $111m)?

programmertote 7y ago

I'm a bit confused as to what 'tax unit' mean here. Is that the amount of tax (in monetary unit like USD) one is supposed to pay if s/he hits certain percentage of wealth class? Thanks in advance for the reply!

mikeyouse 7y ago
I'll just copy/paste from the source of the chart, but a tax unit is everyone on a single tax return where a household is everyone that lives in a house. So if an elderly parent who pays their own taxes moves into their adult children's household, that property would consist of 1 household but 2 tax units. The net worth of the household would increase, even though the net worth of those two tax units stayed the same. > "For most people, their tax unit and household are the same. But there are cases where a household would include multiple tax units. When an elderly parent moves in with an adult child with kids filing taxes separately to form a three-generation household there would be multiple tax units exist in one household. The same is true when a child moves back in after college or an unmarried couple moves in together. These are groups that we probably want to think about together because they rely on each other economically. On the other hand, a group of unrelated adults living together as roommates would also count as a household." > We might prefer tax units to households for income trend analysis because household structure is not independent of economic circumstances. For instance, adult children move back in with their parents (Gallup reported that 14 percent of 24 to 34 year olds lived with their parents in 2013 and a Pew Research Center study showed this to be increasing). Similarly, homeowners sometimes take in boarders for economic reasons. In each of those cases, the tax-unit data captures the deteriorating economic situation associated with these types of living arrangements. > In contrast, household data captures more earners under one roof, which increases household income. Imagine a group of three graduate students living together where each makes $25,000. They would show up as three different tax units but one household making $75,000. Now image that they all got $5,000 raises and decided to get places on their own. This would show up as a 20 percent increase in their incomes by tax units, but their household incomes would have dropped by 60 percent.

bb2018 7y ago

This is clearly not true - if you are making that much and are a constant (but not even especially frugal) saver you will have 10M by the time you retire. The top 1% includes people of all ages - including people collecting paychecks their whole life - not just people who are in their 30s. Of course, in 20 years 10M will not mean as much, but nonetheless it is important to remember 20% of the population is at or near retirement age. https://www.nerdwallet.com/investing/retirement-calculator https://www.nerdwallet.com/investing/retirement-calculator

cm2012 7y ago
Just because it's possible doesn't mean it's common. So OP is correct.
- mikeyouse 7y ago
  I ran the math -- If you are a married couple who earn $500k/year in California, you'd have to save 40% of your post-tax income at a 7% rate of return for 27 years to accumulate a net worth of $10M. It's exceedingly rare to make that much money for that long of a period of time.
  - dillonmckay 7y ago
    And no inflation.
    - WillPostForFood 7y ago
      The 30 year inflation adjusted return on the S&P 500 is 6%, and if dividends are reinvested, 8%. Retrospectively, a long term 7% return would be unremarkable. I wouldn't bet those numbers will be quite as strong going forward.
  - stephencanon 7y ago
    It's not the norm, but it's also not especially rare. A doctor married to a lawyer (or a big tech engineer) will easily clear that for most of their careers.

deleted 7y ago

[deleted]

metacritic12 7y ago

Isn't wealth the red herring, and income the proper measure? After all, the median (50%tile) wealth is nearly zero. Amongst those with zero wealth, the top income earners clearly have better lives than the low income earners, since the top income earners can consume more. The ultimate measure of resources is how much a person can consume a year. Income is equivalent to what you can steady-state consume. Wealth is just what you happened to save up to that point in time. Since the wealth gap is larger than the income gap (since wealth is saved past income), the wealth gap tends to be pointed out by people who want to overemphasize inequality.

alexkcd 7y ago
No, because 10M generates a steady return in a growing economy. So the steady-state consumption of someone with a net worth of $10M is much greater than someone with $0, all other things (e.g., income) being equal.
bobbydroptables 7y ago
A person with $10M in wealth should be earning $500k a year taxed at capital gains rates. This person does not and will not ever live like a mere mortal (unless for show or sport). Assuming he's not an idiot, the $10M guy would have to try reasonably hard to become broke. A person earning $500k/yr is reasonably likely to be a normal guy--maybe semi talented business person or tech exec paying regular income taxes (at least partly) that could quickly become broke or at least become a mere mortal again if he stopped working. I don't really have anything against this guy. He's not a pervasive driver of inequality. He's not at the tier of wealth where you're buying influence. He's likely stuck in an expensive COL place. Unlike Mr. $10M, he probably hasn't carefully shielded his funds from divorce, family, etc. >Wealth is just what you happened to save up to that point in time. Nobody just "happens to save up" $10m. You either inherited it, lucked into it or grinded for years or (more likely) decades with the express aim of a payday (and you got lucky enough to get one).
thatfrenchguy 7y ago
> After all, the median (50%tile) wealth is nearly zero Median wealth in the US ~97k. It’s quite stunning one could think a society would work with the 50-percentile being zero.

onlyrealcuzzo 7y ago

Exactly. For example, if you have a $10M net-worth, according to Gabriel Zucman & Thomas Piketty, you get higher returns on average than the little guy. Not sure the exact number, but let's say an ~8% return on average (believe it's higher). You would make ~$800K a year in "capital gains" and pay $133K in federal taxes. If you earned $500k in income, you'd pay ~$164K in federal taxes. You'd pay another ~$35k+ in states most people live in for about a 39.8% tax rate. Not to mention, your employer is paying another 5% in payroll taxes to employ you. So, really, it's a 44.8% tax. But if your income comes from "capital gains" instead of working, you'd pay less than half that percentage in tax -- at 16.25%. Why is there a distinction between "capital gains" and dividends and fixed income? Because only the very wealthy get most of their income from capital gains. Even people with $1-5M in wealth... they're mostly the people that worked really hard and still got a little lucky with their investments. They're almost all old. They've paid off their house. So... 1) most of their wealth is tied up in their house, and 2) most of what's left over is tied up in fixed income like bonds -- which are taxed as "income" and not "capital gains".

gitgudnubs 7y ago
Your calculations are based on an erroneous model. Corporate profits are taxed twice. The effective tax rate of dividends can be as high as 39.8%. I'm not sure what typical numbers are, because I couldn't find 2018 data, and 2017 data predates significant tax cuts.
- onlyrealcuzzo 7y ago
  Did you read my comment? Dividends are considered income! Capital gains is a different thing, and the distinction exists largely because only a small subset of the population has the ability to make a lot of money from capital gains -- because, by its nature, it requires a lot of capital...
  - vonmoltke 7y ago
    Qualified dividends are taxed as capital gains. Capital gains are income and reported on Form 1040. What they are not is "ordinary income" subject to the income tax table. A person with $700k on capital gains is well inside the top 1% of income.

gitgudnubs 7y ago

A single person in San Fransisco with an income of $500,000 and the standard deduction has a takes home $288,646. A single person in San Fransisco has a cost of living of $1125.83 without rent, according to numbeo (whatever that is). Median rent in San Fransisco is $3700 for a one bedroom. That leaves a measly $230,736 of post-tax, post-living expenses money. Assuming this person does nothing more than hide a monotonically increasing pile of cash under a mattress, it takes just over 43 years to amass $10,000,000. Presumably this financial cretan started working right after college, at the age of 22. This means they've acquired the full sum at the age of 65, which is not an uncommon retirement age. Cuts close, but checks out.

viscanti 7y ago
I don't think many people should expect to get into the top 1% of assets by just sticking money under a mattress. Presumably most would invest it and expect an average rate of return of 7% or so from decades of investing. Eventually the investment grows more from compounding than new income.
- novok 7y ago
  The compound interest of saving 19k/month @ %7/yr rate results in 10 million after 21 years, which is under half of 43 years.
  - taneq 7y ago
    And you can get 7% per annum on a savings account... where, exactly? Back in 1985 via a time machine, maybe?
    - jki275 7y ago
      S&P 500 index fund will probably average you around 7%.
      - MR4D 7y ago