What Caught My Eye Today - Wealth in America

The Occupy Wall Street movement claims that it represents the 99%. One of the biggest issues, if not the biggest, that will dominate the upcoming presidential election is the state of the US economy and, by extension, concerns about the widening wealth gap among the citizenry. I'm not suggesting that the United States is in imminent danger of an 'American Spring' but all of these headlines got me to thinking, who exactly are the 1%, do they really have an unfair advantage and finally, is that advantage really that damaging?

First, let's see if we can determine who the 1% are. This is a bit tricky because you have to decide what top you wish to measure and then the criteria by which you determine represent the top 1% and who doesn't.  For purposes of this particular rant, I have chosen to measure the top 1% of wealth as determined by household income. The statistics that I cite are based on publicly available information collected primarily by our friends at the Internal Revenue Service in the form of tax returns. Based on 2009 tax returns, you needed to report an adjusted gross income of $343,927 to make it into the top 1%, which 1.4 million taxpayers did. To provide some context, to make it into the top 50%, you needed to earn $32,396.

Having identified our top 1%, let's see just how much those rat bastards are sticking it to the rest of us. Using 2009 tax returns as our basis for comparison, the top 1% reported 17% of all income in 2009 while the top 50% reported 87% of all income earned.  For those of you who aren't that good at math, that means roughly half off all income earners reported just 13% of the total income reported in 2009. Now, before we draw any hasty conclusions, perhaps we should get some insight into the other side of the equation--is the top 1% paying it's fair share of taxes? In 2009, the top 1% paid 37% of the taxes collected and the top 50% accounted for 98% of total tax revenue.  It would seem, based strictly on this metric that the top 1% is paying it's fair share...and more. Therein lies the problem. Using a very narrow measure, one can draw broad conclusions, often to support a position that may not take into account the "whole picture". But that is a rant for another day.

Let us assume, that the top 1% does, in fact, have some sort of advantage over the 99% (as I see it, this is not exactly a huge leap of faith). Let us also assume that this advantage manifests itself as a wealth gap between the top 1% and the other 99%.  Is this wealth gap growing and if so does it pose a threat to baseball, hot dogs, apple pie and Chevrolet (I'm dating myself a bit here by making a reference to a kitchy little jingle the guys at Chevrolet came up with a few decades back to tie their cars to all things American)? We'll start by trying to quantify the wealth gap between the top 1% and everyone else.  If we consider net worth (the value of everything a person or family owns, minus any debts), the wealth gap hasn't varied that much over the past several years. In 1983, the top 1% accounted for 33.8% of wealth distribution compared with 34.6% in 2007. Not a huge variance, if you ask me. Even if you take the home out of the net worth equation, which for most of us is the biggest contribution to our net worth, the numbers tell basically the same story. In 1983, the top 1% held 42.9% of the wealth compared with 42.7% in 2007. So far, it seems that the wealth gap hasn't changed much, but are we missing something?

Yeah...we are.

As it turns out, most of us have no idea that wealth distribution is as concentrated as it is. Stunning, right?  Popular opinion indicates that most of us think the top 20% control about 60% of wealth when, in reality the percentage is about 85%. And when it comes to the bottom 40%, we think that the amount of wealth is about 10%; it's closer to 0.3%. Clearly, there is a disparity, or gap if you will. between the top and bottom. Interestingly, when asked to define an ideal wealth distribution, those surveyed thought the top 20% should have 30 to 40% of wealth and the bottom 40% should have 25 to 30%. So even in an "ideal" world we think there will be a wealth gap of some significance. Not nearly what it currently is, but a gap nonetheless.

I won't bore you with all of the analysis; trust me there is a lot out there. What it all boils down, in my mind, is a few not too surprising things. First, wealth and well-being are highly valued. Second, those who have the most goodies are the most powerful. Third, it is hard, really hard for the bottom 90%, to move up the power pyramid. Fourth, taxes don't have much of an impact on wealth redistribution.

Alright then. Time to bring this rant to closure.

Here's my take. We live in a society that rewards the "haves" over the "have nots". In and of itself, I don't see that as necessarily being bad. I think you should have some incentive or motivation to work hard and be rewarding appropriately for your efforts. However, it is my contention that such incentives are only effective if you have a level playing field. I would further argue that the playing field has been tilted to favor the "haves" much more than the "have nots". Herein lies the threat of damage. I started off by mentioning Occupy Wall Street and alluding to the Arab Spring.  Movements such as these, and heck you can include the TEA Party if you like, suggest a rising level of discontent driven by an underlying sense of inequality. Most people aren't looking for hand outs. All they want is a fair shot at achieving their American dream. For a good manner years we took this privilege for granted. As a result, there were some folks that seized upon the opportunity to secure a bigger pie of the pie for themselves. We've finally noticed that our slice is much smaller than it used to be. Statistics and analyses are great for pointing out what has happened and might even provides some insights as to why. Unfortunately, they cannot tell us what to do going forward. We need to figure that out for ourselves.