There’s considerable confusion circulating over who is in the top 1% in the United States, with a constant barrage of numbers that seem to shift depending on source, agenda, and timing. These are often used as derails, and it’s easy to derail with arguments about how to define the top 1% in the United States, because there are a number of different ways to look at it, all of which are valid. In all the discussion, people do generally seem to agree that the inequality is staggering, and there are a number of very colourful and stunning charts to point this out and argue about precisely how staggering it all is.
For the chart-lovers among us, incidentally, many of the links in this post will lead you to a panoply of delightful, stark, illuminating charts on the state of wealth, income, and inequality in the United States. You’re welcome.
It’s important to define who is in the 1%, and who people are talking about when they mean the 1%, because there’s a lot of rhetoric flying around this idea. Some people are identifying as members of the 1% when they are not, and they’re usually doing so for the purpose of berating people who are protesting income inequality, like this dude, who seems to think that bootstrapping (and taking advantage of government benefits paid for by my taxes and possibly yours), will get you into the 1%. Dude also seems to think, although it’s a bit unclear from framing, that making $100,000 a year puts you in the top 1%.
Others are identifying as 1% in supportive pieces saying they’re ‘with the 99%,’ not understanding that they are the 99%. Which illustrates a touching lack of understanding about the depth of income and wealth inequality in the US. So, who’s in the 1%? How do we define the 1%?
One way to think about things is in terms of income: What are people making per year? Even this, though, is complicated. Many members of the 99% associate income specifically with work. You go to an office, or work behind the counter at a bakery, or report for duty on highway crews, and receive a regular paycheque. Income, however, also includes proceeds from investments like stocks, bonds, rental property, and other income-earning assets. This is important, so remember it.
You can also think about things in terms of wealth: What kinds of assets do people have access to? Professor G. William Domhoff points out in this superb assessment of wealth, income, and inequality in the United States that there are actually several different ways to think about wealth. There’s wealth in terms of net worth, the things you can theoretically readily transfer or sell, minus the debt you carry, which can be substantial for some of us. There’s also ‘financial wealth,’ which is your net worth, less your equity in real estate. The argument for distinguishing between these two things, Domhoff explains, is that homes are not easily liquidated, especially right now. Incidentally, as many people are probably aware, home value has been declining precipitously in the United States over the last decade, and the people hardest hit by that have been in the 99%, people owning homes in the middle and bottom of the market.
Purely in terms of income, according to tax returns filed in 2009, if your adjusted gross income is higher than $343,927, you’re in the 1%. These charts from Mother Jones, which I keep on speed dial because I use them so often, highlight that the average income for the 1% is $1,137,684, using 2008 data (the numbers are pretty similar so it’s a fair comparison). What’s with the big disparity between the cutoff and the average? The top .01%, who make an average of over $27 million annually per household all by themselves and significantly weight the scales. Make no mistake about it; when people discuss the concentration of income in the United States, the disparities between the 99% and the 1% are not only vast, the disparities between the top 1% and the top .01% are pretty immense.
By the way, the 1% makes 17% of the nation’s income.
Just for contrast, if you make more than $32,396, you’re in the top 50%.
Something else to consider, when looking at these income numbers: This is not income from work. The vast majority of people in the 1% are making money from investments. A breakdown of demographics in the top 1% shows that in the lower half of this group, you do find some members of the professional class, usually there with substantial help from family wealth and social advantages. Most of those people, though, are associated with the financial industry. The numbers get even more stark the higher you go. Looking at the upper half of that 1%, particularly the .01%:
Folks in the top 0.1% come from many backgrounds but it’s infrequent to meet one whose wealth wasn’t acquired through direct or indirect participation in the financial and banking industries…The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations.
Participating in the financial industry means you’re earning money from assets; financial derivatives, real estate, and all the other tools the industry uses to shuffle money around and make more money appear. Because the vast majority of these high incomes? Are coming from investments. Not work. There’s a myth that people can achieve this kind of wealth through bootstrapping; for an absolutely beautiful takedown of a recent bootstrapping meme, check this post out (h/t Lesley Kinzel). The fact is that you rise to positions of power in the financial industry primarily through family connections. You get wealthy because you come from wealth and your family uses that to build more wealth or buy positions for you. Not by working really hard and eventually getting what you deserve.
And for all you believers in social mobility out there, substantial research into the subject has pretty neatly deflated the bootstrapping myth. If you’re born poor, you’re likely to stay poor. If you’re born rich, you’re likely to stay rich. Here’s a chart showing shifts in social mobility over time, illustrating that mobility in both directions has decreased over the years.
But income isn’t the only, or the best, measure of inequality. Because wealth is also important. Wealth can make a significant difference in quality of life, the difference between being able to pay for emergencies and not being able to pay, being able to send kids to college and not being able to send them, being able to retire and not, being able to accomplish many, many things which are only possible when the tracks are greased with some personal wealth, right down to getting a new apartment when you’re escaping a dangerous relationship and you need a deposit for the landlord. Wealth is a tool that can be used for power and control, and is used for those very purposes, and when you look at wealth, you will encounter an entirely different set of numbers.
This paper from the Federal Reserve has some fascinating numbers on personal wealth (truly, if you love charts, check it out, because there are some great statistics in here, including a discussion of negative net worth and racial disparities). Hard data on wealth can be tricky to collect because there’s not a reliable source of information like tax returns for income.
In 2001, before the economic meltdown, almost 7% of the population had negative net worth.
Meanwhile, 20% of the population controls 85% of the wealth, according to 2007 numbers used by Domhoff. The top 1%, with $1.2 million or more in assets per household, holds 34.6% of net worth and 42% of financial wealth specifically, a difference discussed above; it should come as no surprise to learn there’s quite a gender gap, too. In other words, the super-rich aren’t relying as heavily on equity in their homes as the people below them, which makes them a lot more financially safe, and stable, than the 99%. When the majority of your wealth is tied in a home you cannot sell, you are ‘house poor,’ and functionally screwed (this is a highly technical economics term, I wish to assure you). Disparities are even more intense for people with disabilities, who experience a higher unemployment rate, and usually have less personal wealth, than nondisabled people. There’s also a significant racial element; whites make more, and have more wealth, than people of colour and nonwhite people.
How significant? The racial wealth gap is rapidly increasing, but to grab just one statistic for you, recent numbers indicate that white families hold a median wealth of twenty times higher than that of Black families. Black families were particularly hard-hit by the foreclosure crisis, and lost a lot of wealth very fast. Similar statistics can be seen in other communities of people of colour and nonwhite people across the US.
Wealth brings in direct ties with control. One way people can exert power on the financial industry, for example, is through shareholder votes, which are open to people who hold stock in publicly traded companies. Shareholder activism is one approach being used by a number of different organizations to reform major financial firms and the industry as a whole. Guess who held 91.1% of the stocks in the United States in 2007? The top 20%, with the top 1% holding 38.3%. Wealth breeds power, and power breeds wealth, and a neat feedback loop is created to reduce leakage, the old ‘trickle down effect’ that allegedly allows everyone to benefit when some people hold an absurd amount of the nation’s wealth, and make the bulk of the nation’s income.
When people start talking about the 1%, make sure you, and they, know who you’re talking about.