You can picture the club of America’s 400 richest taxpayers. They’re hanging out in their mansions or their chaffeur-driven limousines, thinking of new ways to grind the poor into the dirt.
Of course, your picture is completely wrong. Geoff Colvin explains why in the latest issue of Fortune magazine.
A portrait of the super-rich based not on our imaginations or old stereotypes or political rhetoric but on the most recent data is quite different. The most important difference by far is that the superrich are not a group at all. America’s top earners are largely not the same people from year to year. The IRS doesn’t provide relevant data for the top 1% but does so for an even more exclusive cohort, the top 400 earners. The most recent data detail their incomes from 1992 through 2009. Entry-level income was $77.4 million in 2009, having peaked in 2007 at $138.8 million.
The big headline from the data is the total number of different people who have been among the top 400 during that 18-year period. What’s your guess: 500? 800? 1,000? The correct answer is 3,869 out of a possible 7,200 (if no one had ever repeated). Of those people, 73% appeared in the top 400 exactly once during 18 years. Far from being a closed caste of super-earners, the top 400 are a constantly changing assemblage, the vast majority of whom experience one spectacular year.
Unsurprisingly, most of those people in their time at the top don’t earn much income from salaries — that source furnished less than 10% of income in the most recent five years of the survey period. But cutting against the stereotype, they also don’t earn much from interest and dividends — 15% to 20% during the most recent several years. By far the cohort’s largest source of income, over 70% in some years, is capital gains.
A picture emerges. Someone sells an asset, probably a business or a stake in a business. Maybe he spent a lifetime building it. Maybe he got lucky and invested in the right Internet company. He cashes in and collects a fortune. He makes his one appearance in the top 400, then he leaves that rarefied air.
The difference between this data-based picture and the one that dominates the inequality debate is important because it’s really a contrast between two nearly opposite views of our economic system. In one, the super-rich are a cozy, self-perpetuating club that somehow rigs the game in order to keep collecting a hefty share of the economy’s rewards. In the data-driven view, by contrast, “super-rich” isn’t a group of people but a wide-open place from which, on average, most residents get kicked out every year so a new majority can move in. In one view, America is a land of privilege and injustice. In the other, it’s a land of extraordinary opportunity.