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Jan 02 2016

One Percent to Rule Them All

Three Rings for the Elven-kings under the sky,
Seven for the Dwarf-lords in their halls of stone,
Nine for Mortal Men doomed to die,
One for the Dark Lord on his dark throne
In the Land of Mordor where the Shadows lie.
One Ring to rule them all, One Ring to find them,
One Ring to bring them all and in the darkness bind them
In the Land of Mordor where the Shadows lie.

Sauron from “Lord of the Rings” by JRR Tolkien

The top one percent of our financial world are constantly being vilified and framed at least to represent all that is wrong with income and wealth inequality if not actually causing the wrongs.

Here are the complaints levied against the top one percent:

  • The top 1% get 25% of the total income
  • The top 1% have 40% of the total wealth
  • These levels are higher than the past
  • The gap between the top and the bottom is growing
  • There is an assumption that an unfair advantage is involved

Here are some factors that describe the top one percent in the US:

  • The dividing line between the top 1% and bottom 99% for income is $344,000 (2009)
  • There are 1.4 million in the top 1%
  • They earn 17% of income
  • They pay 37% of income tax
  • They average $960,000 in income
  • Their average wealth is $14 million
  • The dividing line between the top 1% and the bottom 99% for net worth is $8.4 million
  • Age is important – younger age brackets typically show income higher than wealth and older age brackets more wealth than income
  • Problems with the numbers – These numbers can vary with the year and even with the source. There is a difference between income (annual earnings and paycheck income) and wealth (accumulated value or net worth) and it’s possible to be wealthy without showing much income or even vice versa. There are different valid ways to calculate “income” and “wealth” and “net worth”.

    Inside the numbers – There is a further breakdown inside the 1% showing that most of the 1% are not growing their share of the wealth. Most of the growth is in the top of the top 1%. The top 0.1% is growing while the top 1% is close to flat growth and the top 0.01% is growing rapidly.

    Turnover rates:

    • 61% of US households will reach the top 20% in income ($111,000) for two consecutive years
    • 39% of US households will reach the top 10% in income ($153,000) for two consecutive years
    • 5% of US households will reach the top 1% in income ($344,000) for two consecutive years
    • 12% of US households will reach the top 1% in income ($344,000) for one year
    • 0.6% of US households will reach the top 1% in income ($344,000) for ten consecutive years

    Conclusions:

    • Wealth enables extreme wealth by creating new opportunity
    • Opportunity creates wealth but it is often not sustained – large changes are often caused by one time events
    • When wealth is created, it changes the circumstances and paradigms of the wealth holder, which in turn likely change the income reported

    Finally, it’s interesting to note that we admire and respect the top one percent of our scientists, authors, athletes, actors, and many more profession groups. We don’t automatically assume they achieved that status through some form of unfair advantage. But when somebody accumulates wealth, we do like to assume that we have not done the same because the deck is stacked against us.