Thursday, September 15, 2011

Who Owns What?

Who Owns What In America? 
 Imagine lining up everyone in America according to what they own, starting with those who own nothing and continuing down the line to those who own a lot.  Now divide that line of people into five equally long segments.  Each segment would include 20% of the total population, or about 61.7 million people.  Next, add up the total amount of what everyone owns in each segment.  The result is represented by the pie chart below.  The whole pie represents the total wealth in America.  The size of each slice represent the ratio of how much each segment owns of America's wealth.  The slice of ownership for the poor and working poor are barely visible.  80% of all Americans own just 15.6% of America's wealth. 

ADDENDUM:  The number of people who slipped into poverty in 2010 is an all time high of 46.2 million, so the poorest 20% in terms of wealth ownership includes 15.5 million folks who technically don't meet the poverty criteria, based on income levels.  The poor essentially own almost nothing.   The working poor own twice of almost nothing.

When I first plotted the distribution of wealth in America in this pie chart it reminded me of that Pac-Man figure.  The richest Americans own 84.6% of everything while the remaining 80% of us have 15.4% left.  The statistical middle of what we call the "middle-class" owns just 4% of America's wealth assets. 

Second addendum:  A lot of folks are asking me to include income figures with the pie chart.  The pie chart displays the distribution of wealth, not income.  It includes all equity ownership in everything from homes to 401K's, stocks, bonds, businesses, etc.  This chart cannot be directly converted to income levels. There are people with equity but not much income and people with large incomes but not much equity.  However, some assumptions may apply.  For example, the median income (middle most income) will fall somewhere near the center of the red colored slice, about where the label line is drawn. That group makes, on average, about $26,364 per year, or about $52,000 per household.  The top 1% own a little more than half of the big yellow slice, and there are data about the average income in that group.  One of the things most disturbing about this graph, in my opinion, is how things look when we label  our financial classes by percentile groupings rather than income levels.  We really come to see just how compressed wealth distribution is in America.  Missing from media discussion over the past few decades is mention of the working poor.  Everyone is either poor (now about 45 million people) or middle class, which has come to include people who are really quite well off.  But when you see wealth classes distributed and labeled this way you begin to see just how disproportional things are.  The other conclusion I come away with is that there is plenty of wealth here in the still wealthiest nation on Earth.  Telling ourselves that we can't afford social services for the poor or good public schools or what ever else we desire as a nation is simply not true.  As a nation we can afford a much better society than we have now.  (See my 99 year history of tax rates in America for an idea of how we got this way.




    Larry Ganschow:

    If you take all the rich people's monies from them, and redistribute it evenly, the majority of the rich people would have their money back within 5-10 years. Rich people know how to handle money- poor people do not. "Learn how to run your money, or your money will run you." - Dave Ramsey.

    Brian Lynch:

    I wouldn't take money from the rich, but I would ask them to pay a fair share. On my blog [] is a graph that charts the number of tax brackets into which income was divided over the last 100 years. Looking back, it is apparent that our progressive tax structure had many more tax brackets separating rich and poor for most or hour history. There was a peek of 56 income tax brackets in 1918. In 1924 (the Roaring 20's) that number was compressed to just 23 tax brackets. The number of tax brackets fluctuated over the next 62 years but maintained an average of 25 brackets until the 1980's. The Regan administration collapsed the top 10 brackets, dropped the top tax rate from 70% to 50%, then to 28% and raised the tax lowest tax rate at the same time. The deregulation of the banks in the '80's and the flattening of the tax structure are major factors for the wealth disparity we see today.

    Tom Cerner:
    The rich pay between 20.3% and 39%. How much more do you want the rich to pay?

    Brian Lynch:

    In the 1960's people making the equivalent of 3 million dollars per year paid 91% in income taxes, and at that time capital gains was treated as ordinary income. Today a person making that amount pays an effective rate of 17%, a far lower tax rate than you or eye. Something like 80% of the income of someone making that kind of money comes from capital gains, which is taxed at half the rate of income derived from actual work. At the start of the Regan years the wealthiest were taxed at 70%. He dropped that first to 50% then to 28% while actually raising the tax rate on the lowest earners. Capital gains was no longer treated as ordinary income. This, combined with deregulation of the banks and financial industry, is the beginning of the huge wealth inequity we have today. After Regan's second tax cut, a person making 100 million dollars a year paid the same 20% tax rate as someone making 100 thousand a year. The progressive tax structure we had for the prior 70 years was flattened for the wealthiest among us and the responsibility of funding the government shifted decisively to the

  2. Larry Ganschow: ‎"it’s likely that the top 1% of income earners will likely pay an even higher percentage share of overall income taxes than 38%. "

    Brian Lynch:
    ‎@Larry - WOW! This a a perfect example of how we get bamboozled. First, only a little more than half of all wage related taxes collected by the FED's come from income tax deductions. Almost half of all wage taxes collected come from payroll taxes of which everyone making over $108,000 doesn't pay a dime more. (Social Security, Medicare and Unemployment Insurance are primarily shouldered by the poor and middle class. Payroll taxes are very regressive.). Second, this IRS chart at the link site may not include capital gains income, which is not treated as ordinary income.? I can't tell for sure, but for the richest Americans 80% of their annual income comes from Capital Gains which is taxed at 15%. If the top bracket is 28% and 90% of the top earners income comes from Capital Gains taxed at 15%, it is hard to see how their effective tax rate can be 23%. The only way it can be that high is if privately owned business taxes are included here. But then the word "Individual" taxes would be misleading. Third, I don't know how it is possible that 50% of the taxpayers make an average of $33,000 per year when we know that the median income is $26,364 per year. This chart obviously doesn't include many Americans whose incomes are so low they don't pay income taxes, such as the elderly on Social Security. And once again, my pie chart above has noting to do with income. It is a graph of ownership stake in America.

    As for 38% for the highest earners??? Where does that come in?

  3. Peter Minhkhoi Tong: What makes you entitled to the fortunes these people have amassed? They or their forefathers did something profound and great to EARN the money. Whether they are first generation millionaires, or it has been passed down in their family, the wealth they earned is theirs to do with as they see fit. To believe you are entitled to the fruits of their labor like some parasite leeching the life out of its host is a perverted and socialist. Having the government tax and regulate businesses only retards growth and enterprise. So go ahead, and plead and beg for the government to tax your prospective employers to death. They will be more than happy to move to another country and take their jobs with them.

    Me: What makes those who amassed fortunes immune from paying a fair portion of the peoples taxes back into the US economic system that allowed them to succeed in the first place? These folks are not just the first generation to succeed (although some may be so lucky), and they are not much different that those who try and fail. There is more chance than skill or character that separates the prince and the pauper. And the money collected by the people for the people's governance go towards the collective good and those most in need of assistance. So what does it say about the character of those who succeed so exceedingly that they don't feel a need to share with those less fortunate? Is that what their mother's taught them?

  4. Peter Minhkhoi Tong: Capital Gains tax shouldn't even be there to begin with. That is income that has already been taxed through income tax. For them to tax it further is ridiculous and sends the wrong message about saving your wealth. And when you pay 90% of your income in taxes, it means you are a slave for 90% of your working life so you can support others. What incentive is there working when you give away everything you work for? How is that fair and equal treatment under the law? How has penalizing success worked out? After Obama limited the amount banks can charge for credit card transactions, what happened? Banks are charging us, the normal working class to have a checking account. Tell me, how did those "greedy" banks hurt? They pass the cost down to us, the consumer. Sure, create more tax brackets again in the past, and tell your self that is "fair" and "equal." How so? What is equal treatment in having to pay more taxes because you did something great with your life?

    Brian Lynch: Capital gains is money made when you buy an ownership stakes in something of value and then sell it later at a profit. It is a purchase and sale transaction for profit, very similar to a wholesale/retail transaction or selling on Ebay. It isn’t interest income from savings, where your money is on loan for a fixed return. It isn’t dividends where your money is on loan for an uncertain share of future profits. Interest and dividends are both treated as ordinary income, yet you say that profits from the purchase and sale of private equities should not be considered income? It would make more sense to treat capital gains (from other than owner occupied real estate) as a business and tax it at business rates (currently 35%). But you and others insist that it is somehow a double tax. Can you explain that too me? It makes no sense.

    The other point about capital gains is that it is only an option for the richest Americans. Forty-percent of all American’s have essentially no ownership in anything and can’t afford to purchase anything of value beyond what they need to survive. For the wealthiest 1% capital gains is about 80% of their income. So taxing the poor for the little they earn by the sweat of their brow while not taxing the rich for the great gains they make with just a few key strokes strikes me as immoral.

    As for “ penalizing success” with higher tax brackets for the wealthy? That worked out just fine for about 50 years. It resulted in a tremendously expanding American economy. We become the greatest military and financial powerhouse the world has ever known and created the largest, most robust middle class that ever existed. It all began to crumble when the progressive tax structure was crushed in the 1980’s. Middle class consumption of goods and services is the economic engine that lifts all boats. Starving the middle class will make the wealthy fantastically richer in the short term, but it will eventually kill the golden goose that creates all that wealth. If you don’t stoke the fires of consumption with cash to burn, the economy will cool down and eventually smolder.

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