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The Wealth Questions
This is a work-in-progress. Check back
for updates!
Some questions whose answers this data might help
illuminate:
- Is increasing homeownership
the answer to the wealth problem?
- Is privatizing Social
Security the answer to the wealth problem?
- How important are Social
Security wealth and Pension Wealth to the largest
part of American society?
- Should we eliminate the
Estate Tax? How widespread would the benefits of that
be?
- Who benefits when we reduce
the taxes on capital gains and dividends?
- Should we give corporations
special privileges? To whose benefit do they
accrue?
- Does wealth trickle down?
Under what conditions?
- How many people lack
sufficient savings and resources to meet their most
simply defined needs for a few months?
- Do the new bankruptcy laws
produce effects we find desirable? Who benefits? Who
loses?
- Is this class
warfare?
- Are most of us on track to
being able to retire at age 60? Age 65? Age 70? Age 75?
Ever?
- How would you characterize
the purpose of our economy based on the data? What are we
succeeding at? What are we failing at?
- Who benefited when middle
class people started buying stock and related
instruments?
- Maybe we should just
pretend that the top 1% (or 2%, or 3%) don't matter, and
go on our merry way? Maybe they live in a different world
that doesn't affect the rest of us?
- How shall we define the
Middle Class? Think about this with respect to how our
wealth is held, as well as with respect to income
distribution.
- Who benefits as
corporations and other employers switch from Defined
Benefit pension plans to Defined Contribution plans such
as 401(k) plans?
- What year will the
triennial analysis of the Survey of Consumer Finance be
titled "Up a Creek without a Paddle?" (The most
recent two are A Rolling Tide: Changes in the
Distribution of Wealth in the U.S., 1989-2001 (2003) and
Currents and
Undercurrents: Changes in the Distribution of Wealth,
1989-2004 (2006). )
- What year will some member
of Congress suggest doing away with the Survey of
Consumer Finance because the data it reports is too
discomforting to the interests of his or her largest
campaign contributors?
- What can the wealth
distribution data tell us about how decision-making is
done in this country?
- Are some kinds of wealth
different from others? How might it be appropriate to
make distinctions among various kinds of wealth?
Is increasing homeownership the
answer to the wealth problem?
Not to the extent that its boosters might suggest.
Yes, the data generally show that on average, people who
own their homes have far more wealth than those who do
not, both in home equity and in other kinds of wealth.
(See
Recent Changes in U.S. Family Finances: Evidence from the
2001 and 2004 Survey of Consumer Finances,
particularly
Table 3 ,
Table 5,
Table 6 (stock ownership), and
Table 8.)
However, viewed in detail, the data also show that the
average net housing equity of holders in the bottom half
of the wealth distribution are extremely low, and that
increasing homeownership from, say, 69% to 70% by
increasing homeownership among people in that quantile
would itself provide very few benefits to them. See
Wealth Tables 50-40-5-4-1,
especially tables 5
and 7, line 44, column
8 and the comments in the guided
tour.
If in order to become homeowners, people must take on
huge amounts of debt, particularly adjustable-rate
mortgages, promoting homeownership alone is not the
answer but a diversion and an disservice to those we seek
to help: our working poor and our young people. You'll
need to read further to see why promoting homeownership
is a bandaid, not a remedy.
Is privatizing Social Security
the answer to the wealth problem?
For a sense of how important Social Security wealth is
to the vast majority of us, see
Wealth Fractiles. For detail on holdings of stocks,
mutual funds and retirement assets, see Wealth Tables 50-40-5-4-1 and the
guided tour.
How important is Social Security
wealth and Pension Wealth to the largest part of American
society?
For a sense of how important Social Security and
Pension Wealth is to the vast majority of us, see
Wealth Fractiles. This data is not particularly
current, but may surprise you. See also the study from
which the tables are created:
Pensions, Social Security, and the Distribution of
Wealth
To place it in context, look at the newer wealth data
in the Wealth Tables 90-9-1 and 50-40-5-4-1, particularly line 10,
Retirement Assets, in each table, and at Currents and
Undercurrents: Changes in the Distribution of Wealth,
1989–2004 from which they were created.
Also,
The Unraveling of the American Pension System,
1983-2001, which looks at pension wealth holdings
among people age 47-64.
Should we eliminate the Estate
Tax? How widespread would the benefits of that
be?
The Estate Tax is in the process of being phased out.
Currently, only estates over $2 million that aren't left
to a spouse are taxed at all. For 2006, this is estimated
to be 0.27% of estates, or 1 out of every 370
deaths. The exempt amount will continue to
rise through 2010 (to $3.5 million). But in 2011, the
EGTRA law of 2001 will "sunset," and return the exemption
to $1 million.
The question is, what should the exemption
level be? The wealthiest among us are campaigning to get
rid of the tax completely, and they have spent, as the
title of a recent study puts it, "millions to save
billions" (see below) to convince the public, and our
elected representatives, that family farms and small
businesses will have to be divested to pay the estate
tax. Are they right? You can see a lot of the data on
this website, and make your own judgments.
The Wealth 90-9-1
tables, and the guided tour, show how concentrated wealth
is in the top 1% of our society.
You may also want to look at the
wealth fractile data, which provides some support for
the idea that the appropriate horizon is somewhere in the
Top 1%.
If you think it worth considering whether we should
expand the estate tax to a somewhat wider segment of our
society, you might look at the "Next 4%" group in the
Wealth 50-40-5-4-1 tables.
A case could be made that some share or kinds of the
"Next 4%" wealth should be taxed at some point. (More
about that elsewhere on the site!)
If you are interested in the lobbying that has been
going on to abolish the estate tax, read Spending
Millions to Save Billions: The Campaign of the Super
Wealthy to Kill the Estate Tax, (April, 2006), and
Chapter 6 of David Cay Johnston's book Perfectly
Legal: The Covert Campaign to Rig Our Tax System to
Benefit The Super Rich -- and Cheat Everybody
Else.
Does the estate tax represent double taxation? No.
Quite the contrary. It represents the only opportunity to
collect for the commons a share of several kinds of gains
which are quite concentrated in the wealthiest portion of
our population: stocks, privately held companies and
land
value. Upon one's death, the taxable basis for one's
assets is "stepped up" to its value at the time of one's
death; all the accrued appreciation on one's land or
one's business holdings is free of tax — except for
the folks who fall into that top 0.27%.
For more data on the size of unrealized capital gains,
see
Table 9 of
Recent Changes in U.S. Family Finances: Evidence from the
2001 and 2004 Survey of Consumer Finances; mean
holdings of unrealized capital gains in 2004 were over
$900,000 in the top decile.
Why should they be treated differently? Well, their
holdings are generally our best. Their land is in the
choicest places, with the highest value: the central
business district of our most vital cities, the choice
waterfront locations. For more about this, see these
themes: capital
gains, land
different from capital, and two articles: Real Estate and the
Capital Gains Debate and The Lies of the Land: How
and Why Land Gets Undervalued. Buildings
depreciate, but land appreciates, and that value is vital
to all of us. We are all highly dependent on
our urban land, and its misuse and underuse promotes
sprawl, joblessness, long
commutes and housing
unaffordability, and all the social and economic ills
that flow from them.
But the estate tax is not the best solution. As long
as we have our existing system of taxes, and the awesomely skewed
distribution of wealth that results from it, we do
need the estate tax to collect back for the commons a
tiny fraction of the unearned
increment. (A much better answer would be to
continuously collect it; this would get rid of the
perverse
incentives we now deal with. The way to do this is
through concentrating our taxation on land value.)
Who benefits when we reduce the
taxes on capital gains and dividends?
Stock ownership has now reached roughly 50% of
American households, and when the legislation was put
forward a few years ago to reduce the taxes on dividends
and capital gains, it was said that this legislation
would benefit the middle class.
For more information about the how many of us own
stock, you might take a look at these data:
1.
Table 6: of
Recent Changes in U.S. Family Finances: Evidence from the
2001 and 2004 Survey of Consumer Finances
This shows that 48.6% of us owned stock (2004),
directly or indirectly. Some hold publicly-traded stock
directly, some through mutual funds, some through
retirement assets, others through managed assets. (See
the SCF definitions for
details.)
But having said that 48.6% of households own stock
(directly and indirectly), the percentage who own them
outside retirement accounts is much smaller: 20.7% hold
STOCKS, and 15.0% have Mutual Funds. Median holdings are
$15,000 and $40,400 respectively, and mean holdings are
$547,000 and $184,000 respectively (Table
5). [See also: Medians, Means and Wobegon]
2. The Top 1% have 36.8% of the equity holdings, the
Next 9% have 42.0% and the other 90% have 21.2%.
(Table W90-3.)
Table W50-3 reveals
that the Bottom 50% have 1.2% of the EQUITY and the next
40% have 20.0%.
3. The 50-40-5-4-1 and
90-9-1 tables provide a
sense of the relative holdings of equity: Average
holdings among those in the top percentile are about 20
times those of holders in the bottom 90% (Table W90-7, line 28,
columns 6 and 8).
But an equally important source of "capital" gains is
the ownership of land, with or without buildings on it.
This may fall into a number of categories in the 90-9-1 and 50-40-5-4-1 tables: ORESRE, NNRESRE
and BUS, as well as HOUSES, all have land as a
significant share of the value.
The Congressional Budget Office published a study at
year-end 2005 which provided some data on capital income
— that is, income from interest, dividends, rents
and and capital gains — has become more
concentrated over time. In 1980, the top 1% of income
recipients (note that this is not the same as
the top 1% of wealthholders!) received 35.6% of capital
income. By 1990, this figure was 39.7%, by 2000 49.1% and
in 2003 57.5%. See http://www.cbpp.org/1-29-06tax2.htm
and
http://www.cbo.gov/ftpdocs/70xx/doc7000/12-29-FedTaxRates.pdf.
The top 10% of the income recipients received 79.4% of
the capital income.
A table at http://www.ctj.org/pdf/cg0306.pdf
shows that 69.9% of taxable long-term capital gains in
2005 went to the top 1% of the income
spectrum!
Should we give corporations
special privileges? To whose benefit do they
accrue?
When we permit corporations to pollute the air, or
water, or use up nonrenewable resources without paying
the commons for the privilege, in effect, we are
permitting the shareholders to privatize that which
should be our common treasure. The benefits go to the
shareholders. (see: pollution, externality, privatization,
air-land-water,
polluter
pays, natural
resources, natural
opportunities.)
When we permit corporations to renege on pension
liabilities, the beneficiary is those who own the stock,
and those who have the highest paying jobs in the
corporations, whose compensation is tied to profitability
and stock prices. (See privilege)
A case could be made, perhaps, that since many of us
who don't own stock directly are beneficiaries of pension
funds which own stock and are enriched by these
privileges, it is acceptable to pollute the air for
"private" gain. But as long as there are people in the
world, created equal, who don't have their fair share of
the value of corporate shares, this is a false case. And
as long as we anticipate that there will be future
generations of humans, this is a false case.
Does wealth trickle down? Under
what conditions?
Certainly looking at the trends in wealth distribution
over recent years, it would be hard to make the case that
wealth trickles down. To the extent that ownership of the
kinds of resources that all of us depend on is
concentrated in a relative few, those few are in a
position to collect payment from the rest of us for their
use. I refer here not to buildings, but to choice
locations for
buildings, and to other parts of the natural and social
creation that are not subject to increases in supply
following increases in demand. When we must pay large
amounts of our income for a place to live, and when in
order to secure a worthwhile site for a potential
business, we must pay the current owner of that site
exorbitant rents, we have little left to meet our other
needs or to pay for things for which increased demand
leads to increased supply.
Wealth seems to trickle to those who are permitted to
pocket the economic value of our natural resources. (For
more about this, see: land
different from capital, land as common
property, land includes,
land
excludes, rent,
rent as
provisioning for all, privatization,
ownership,
possession,
all
benefits, absentee
ownership, landlord, air-land-water,
spectrum,
birthright,
created
equal, natural
opportunities, first, new country, barriers to
entry.)
How many people lack sufficient
savings and resources to meet their most simply defined
needs for a few months?
This is the flip side of the concentration-of-wealth
issue. It is also one of the intersections of wealth and
income, two focuses of this website. How much does one
need to get by? Having determined that, how many people
have sufficient assets to cover themselves for, say, 3
months?
The question of how much one needs to "get by" has
been answered by a number of studies. Perhaps the most
accessible of these are the Self-Sufficiency Standard
Studies, which have been conducted in over 35 states
in recent years. The answer, briefly, is "a lot more than
the federal poverty line would suggest." How much more?
Here is one part of that answer, for a family of four
in
The second half of the question has also been explored
in a couple of very useful studies about "asset poverty"
by Edward Wolff, of New York University. They use the
2001 SCF, and make the (counterfactual) assumption that
an individual or family can "get by" at the poverty
level, that is, that (1) one can live at least somewhat
acceptably, in any part of America, on spending
equivalent to the Federal Poverty
Guideline; and (2) that one can reduce one's
necessary expenses down to that level rather quickly. The
Self-Sufficiency Standard
Studies make rather clear that the first assumption
is a dubious one (though it should be noted that some tax
expense, partially offset by tax credits, would
disappear); most people's experience would suggest that
the second assumption is also open to question. Having
said that, Wolff's studies on asset poverty are useful.
Check the pages on
Asset Poverty for more detail on this.
Do the new bankruptcy laws
produce effects we find desirable? Who benefits? Who
loses?
Is this class
warfare?
Are most of us on track to being
able to retire at age 60? Age 65? Age 70? Age 75?
Ever?
How would you characterize the
purpose of our economy based on the data? What are we
succeeding at? What are we failing at?
Who benefited when middle class
people started buying stock and related
instruments?
Maybe we should just pretend
that the top 1% (or 2%, or 3%) don't matter, and go on our
merry way? Maybe they live in a different world that
doesn't affect the rest of us?
How shall we define the Middle
Class? Think about this with respect to how our wealth is
held, as well as with respect to income
distribution.
Who benefits as corporations and
other employers switch from Defined Benefit pension plans
to Defined Contribution plans such as 401(k)
plans?
What year will the triennial
analysis of the Survey of Consumer Finance be titled "Up a
Creek without a Paddle?" (The most recent two are
A Rolling Tide: Changes in the Distribution of Wealth
in the U.S., 1989-2001 (2003) and Currents and
Undercurrents: Changes in the Distribution of Wealth,
1989-2004 (2006). )
What year will some member of
Congress suggest doing away with the Survey of Consumer
Finance because the data it reports is too discomforting to
the interests of his or her largest campaign
contributors?
What can the wealth
distribution data tell us about how decision-making is done
in this country?
Are some kinds of wealth
different from others? How might it be appropriate to make
distinctions among various kinds of wealth?
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