Forbes magazine has just published its annual list of the 400 wealthiest Americans, who this year hold a total of $8 trillion in wealth. It’s a gobsmacking amount of money, but we also live in a world where trillions are not unheard of. Here are a few thoughts and perspectives.
The promised Social Security benefits under current law exceed the projected inflows of revenue by about $29 trillion over the next 75 years, according to the actuaries. The promised Medicare benefits under current law exceed the projected inflows of revenue by about $60 trillion over the next 75 years. So if the US government somehow had an extra $8 trillion to play with, it could address either about one-quarter of the Social Security underfunding or about one-eighth of Medicare underfunding–but not both. My first point here is just that while US wealth held by the wealthiest is enormous, it is not an unlimited amount; indeed, the existing promises already made by just these two programs are much larger.
However, there’s no question that US wealth has been growing fast than the economy as a whole. This figure shows the ratio of wealth-to-GDP in the US since about 1960.
From the 1960s up through the 1980s, the ratio of total US wealth to the GDP was roughly 4–that is, with some fluctuations, total assets rose in proportion with the size of the economy. But in the the 1990s, this changed. There was a burst of stock market wealth in the 1990s and a burst of real estate wealth in the early 2000s, and in 2007 on the eve of the Great Recession, wealth was 4.9 times the size of GDP. After the Great Recession, the wealth-to-GDP ratio fell back to the historical level around 4. But a few years later, driven particularly by rising stock prices (which have risen almost six-fold since 2010), wealth-to-GDP took off again, topping out at a multiple of 5.5 in late 2021 and 2022, then sinking a bit, and now apparently pushing to a new high.
This pattern affects how one thinks about the rising inequality of wealth. If the wealth-to-GDP ratio remained the same over time, but the top 1% or 0.1% had a larger share, then the wealth gains at the top would come at the expense of wealth at the middle and the bottom. But with a rising wealth-to-GDP ratio, it’s possible for absolute quantity of wealth at the middle and the bottom to remain much the same, even as the quantity of wealth rises at the top. One might object that both scenarios are unpleasant, and I wouldn’t argue the point too vehemently, except to say that the two scenarios are unpleasant in different ways and with different implications.
The Federal Reserve now runs a website with detailed breakdowns of wealth data, updated quarterly. This figure shows the share of wealth held by different groups. this is household data, so with 134 million or so households in the US (and an average of 2.5 people per household), the top 1 percent consists of 1.34 million households. That top 1% held 8.6% of total wealth in 1989, and how holds about 15% of total wealth. Meanwhile, the bottom 90% of the wealth distribution held 77.2% of total wealth in 1989, but now holds 68.3% of total wealth.
This figure shows the types of assets held by different groups: again, remember that the number of households represented by the first bars, the top 0.1%, is only one-ninth as large as the second bar, and both are much smaller than the bars that follow.
The next figure shows the same data, but instead of presenting it in dollars, it shows the share of assets held by each group. What’s interesting here, I think, is that those at the top of the wealth distributino are more likely to hold assets in the form of stocks and “unincorporated businesses.” hare of assets held by each group. Those further down the distibution hold a greater share of wealth in real estate.
There are a number of proposals out there for wealth taxes, but in my own mind, it seems significant that a number of European countries that tried wealth taxes then repealed them. One common problem is that exemptions and exceptions start getting built into the law: for wealth held by the family farm, for wealth in other family businesses, for historical properties, for family heirlooms, for works of art, and so on and so on. Another problem is how to value wealth that isn’t being bought and sold in the market, and yet another problem is what happens when wealth is held in other countries. I’ve discussed here some more practical alternatives to a wealth tax, like focusing on the rule that allows the value of assets to be “stepped up” at death, so that heirs do not pay tax on earlier capital gains (see here and here). Indeed, just rolling back the US estate tax rules to 2004–which was hardly a time of confiscatory taxation–could raise about $100 billion per year in revenue.
