The Manhattan Institute’s James Piereson uses his Wall Street Journal column today to dispel a few myths surrounding the wealthiest 1 percent in the United States.
To judge by media reports, most Americans would assume that the wealthiest 1 percent are found mainly in the financial sector and reap most of their income from capital gains.
But Piereson writes that “1 percenters” consist “primarily of salaried executives at nonfinancial businesses (30%) and secondarily of doctors (14%), people working in finance (13%) and lawyers (8%). Among the ‘super rich’ in the top 0.1% (about 110,000 households), the distribution still favors business executives (41%) over people in finance (18%).”
These wealthiest Americans depend heavily on salaries, not capital gains:
In 2010 the top 1% earned 36% of their incomes from salaries and wages (what the CBO calls labor income), 22% from businesses, farms and partnerships, and just 19% from capital gains. The majority of their income would thus be taxed today either at the corporate or the highest marginal rate rather than at the lower capital-gains rate of 23.8%.
Emanuel Saez of the University of California (Berkeley) has shown in a series of papers that, as he writes, “The top income earners today are not ‘rentiers’ deriving their incomes from past wealth but rather are the ‘working rich,’ highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age.”
The typical “rich” person today is someone who works for a salary and accumulates stocks and bonds through savings, retirement plans and (for business executives) stock options.
Piereson concludes that portraying the 1 percent as scapegoats for all ills in the United States is a distraction:
At a time of slow economic growth, mounting government debt, a stalemated politics and the impending retirement of the “baby boomers,” the attacks on the “one percent” look more and more like a diversion from the nation’s real problems.