The 0.001 Percent
Derek Thompson argues that the “99 percent vs. the 1 percent” debate actually obscures the real income inequality picture.
An amazing chart from economist Amir Sufi, based on the work of Emmanuel Saez and Gabriel Zucman, shows that when you look inside the 1 percent, you see clearly that most of them aren’t growing their share of wealth at all. In fact, the gain in wealth share is all about the top 0.1 percent of the country. While nine-tenths of the top percentile hasn’t seen much change at all since 1960, the 0.01 percent has essentially quadrupled its share of the country’s wealth in half a century.
It turns out that wealth inequality isn’t about the 1 percent v. the 99 percent at all. It’s about the 0.1 percent v. the 99.9 percent (or, really, the 0.01 percent vs. the 99.99 percent, if you like). Long-story-short is that this group, comprised mostly of bankers and CEOs, is riding the stock market to pick up extraordinary investment income. And it’s this investment income, rather than ordinary earned income, that’s creating this extraordinary wealth gap.
This isn’t exactly news. I’m not an economist or business journalist and I’ve known for years that the concentration is at the very, very top. But, yes, if the root cause of income inequality is that a handful of people make their living off of investments, then, to the extent it requires a public policy response, it has to be aimed there rather than at ordinary income. That means raising the top marginal rate—which may nonetheless make sense for other reasons—won’t address the issue. Rather, we’d need to change the way we treat investments that serve as income rather than those held long term, such as in our retirement and college savings accounts. And, naturally, we should fix things such as the carried interest rule that got so much attention in the last presidential campaign because of Mitt Romney and Warren Buffett.
But Thompson closes with a point that seems to undermine his central thesis:
The 0.1 percent isn’t the same group of people every year. There’s considerable churn at the tippy-top. For example, consider the “Fortunate 400,”the IRS’s annual list of the 400 richest tax returns in the country. Between 1992 and 2008, 3,672 different taxpayers appeared on the Fortunate 400 list. Just one percent of the Fortunate 400—four households—appeared on the list all 17 years.
Now there’s your real 1 percent.
If the most extreme manifestation of inequality is this variable, it’s not obvious why we need to eliminate it. If we had a top 0.001 percent that was essentially an aristocracy, it would certainly be a problem. But if it’s fluid, with most people and families falling out of the class and being replaced by others, it’s not obviously problematic, so long as it’s truly earned. I don’t begrudge Bill Gates his billions; Paris Hilton, on the other hand, is a different story.