The Truth about the One Percent

February 28, 2014

The typical rich person actually works for a salary, says James Piereson, a senior fellow at the Manhattan Institute.

Concern over "income inequality" has swept the nation, but the crusade against the top 1 percent is based on dubious assertions.

  • Last year, of 119 million households that filed tax returns, 1.1 million were in the top 1 percent of the income distribution.
  • Congressional Budget Office data indicate that the top 1 percent received 15 percent of national income before taxes in 2010.
  • Just $307,000 qualified a person to be in the top 1 percent which, Piereson points out, does not go very far in cities like New York or San Francisco.

Are the wealthy mostly Wall Street bankers generating earnings from stocks and real estate, or else executives with extravagant salaries? Not at all.

  • A study of 2004 and 2005 tax returns indicates that 30 percent of the top 1 percent were actually salaried executives at nonfinancial business; 14 percent were doctors; 13 percent worked in finance; and 8 percent were lawyers. Of the 110,000 households in the top 0.1 percent, 41 percent were business executives versus 18 percent who worked in finance.
  • These figures indicate that the vast majority of the top 1 percent earned salaries in small and medium-sized businesses, not large financial firms.
  • Moreover, the top 1 percent includes a growing number of athletes, entertainers and coaches. The minimum salary in the NBA, the NFL and MLB is sufficient to put every player in the top 1 percent automatically.
  • The federal government raised $900 billion in individual income taxes in 2010, $350 billion of which came from the top 1 percent. That same year, the top 1 percent earned 36 percent of their income from salaries and wages -- 22 percent came from businesses, farms and partnerships, while only 19 percent came from capital gains.

Notably, the same factors that have raised incomes of the wealthy -- a boom in asset prices, globalization and technical innovations that have increased the earning power of education individuals -- have elevated living standards across the world.

Source: James Piereson, "James Piereson: The Truth about the 'One Percent'," Wall Street Journal, February 18, 2014.

 

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