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?
|