https://equitablegrowth.org/wp-content/uploads/2019/03/table...
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.
So someone with 500k income can be putting away 250k a year into investments, while someone with a 10 million dollar portfolio can be having 700k in gains each year, only getting taxed when they sell something.
The specific ways both are taxed or regulated depend too much on individual circumstances and governments, but the main point is you can't use a simple model that shows a 'well-off' income earner can make it into the top n% in 27 years, if the assumptions required to get that to work also gives the n% a greater or equivalent benefit.
- Estate taxes: the government wants its pound o' flesh
- Squandering: the wealth is generally gone by the 2nd or 3rd generation. I remember this from The Millionaire Next Door (W. Danko), which is from the 90's, but I haven't come across anything to date stating that the trend has been reversed.
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.
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).
Median wealth in the US ~97k. It’s quite stunning one could think a society would work with the 50-percentile being zero.
Also, note that this figure varies considerably by age and education, as you might expect.
[1] - https://www.nerdwallet.com/article/how-your-net-worth-compar...
That sounds way more alarming than whatever the median income is.
> the top income earners clearly have better lives than the low income earners, since the top income earners can consume more.
The top wealth owners clearly have better lives than low wealth owners because the former don't have to work, yet make more money and pay less in taxes than everyone else.
You haven't made a convincing case for why wealth shouldn't get more attention than income (or at least why it shouldn't get more attention, since the dialogue among politicians and in the media seems to exclusively focus on income despite income taxes being significantly higher than capital gains taxes).
E.g. if you needed less to join the top 1%, then it could be suggested that the gap is increasing. If you need more... well, it could just as easily follow that the bottom 99% percent have merely moved closer to the top 1%, effectively raising the bar (which, as an arbitrary point, shifts all the time anyways).
That said, it could be argued the other way - but the evidence for either direction is lacking. Because the issue is being raised by people who tend to overemphasize inequality, I tend to lean the opposite direction - perhaps we should re-evaluate the way we define upper and lower class.
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.
An inflation adjusted long-term trend is over 7%.
I'm lucky enough to be making ~$400k at 30. At 21, I was lucky enough to be making $65k. Virtually no one starts off making $500k. Even if you start at the top 1% of income earners and stay there your entire life, live relatively frugally, never have kids, never take a break from work, and invest well -- even then, you're still unlikely to accrue $10M in wealth.
I think the high cost of living in San Fransisco was a reasonable assumption for someone in the top 1% of income. I think the complete absence of investment in my analysis more than makes up for a flat career. It's not even clear that modeling a flat career growth increases the number, since income tends to peak around 48.
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".
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.
The complaint at issue is that a passive investor who happened to have 10 million dollars that they inherited at 30, sticks it in betterment for 50 years while drawing a top 1% of income 380k for expenses ( accounting for tax rate ) will eventually have 130 million dollars. They can easily pass this amount down to children at estate tax rates to enable the next generation to do nothing as well, or they could use any one of a number of tax sheltering methods to avoid or defray the estate tax as well.
Generational wealth, or "idle wealth" has been a concern in the US from Thomas Jefferson onward - capital gains taxes are merely one mechanism to restrict it.
I'm not wading into that debate. I'm just concerned with accurate use of terminology, as multiple people in this discussion seem to be playing fast-and-loose with it.
(Ignoring state incomes tax of course. Since I live in Texas, I’m lucky enough to do that).
> "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.
Interestingly, 0.1% 'only' owns $45mil, and 0.01% owns $111 mil. It sounds rare, until 1 out of 10,000 own $111 mil.