“Corporate Wealth Share Rises for Top-Income Americans” is the January 29 headline of yet another uninformed New York Times piece by David Cay Johnston:
“New government data indicate that the concentration of corporate wealth among the highest-income Americans grew significantly in 2003, as a trend that began in 1991 accelerated in the first year that President Bush and Congress cut taxes on capital. In 2003 the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data. The top group's share of corporate wealth has grown by half since 1991, when it was 38.7 percent. The analysis did not measure wealth directly. It looked at taxes on capital gains, dividends, interest and rents. Income from securities owned by retirement plans and endowments was excluded . . .”
All that matters in that egalitarian gibberish is that capital gains, dividends and interest earned inside tax-deferred savings account has been simply “excluded.” The story is only about taxable investments, which are mainly held by those with high incomes because tax-deferred saving plans have income limits and contribution limits that greatly limit their use among the affluent.
The CBO fabricates income distribution data from individual income tax returns. Yet the bulk of most peoples’ capital gains, dividends and interest income have become increasingly invisible on tax returns – stashed away inside IRA, Keogh and 401(k) plans, and 529 college plans. Only the income from taxable investments shows up in tax-based income studies by the CBO, or by Thomas Piketty and Emmanuel Saez.
If you exclude nearly all the assets of middle America from the count, then those at the top must indeed appear to have a big share of whatever assets are still left for tax collectors to tax.
We aren’t talking about small change. The excluded assets of IRA, Keogh and 401 (k) plans grew from $1.9 trillion in 1990 to $6.2 trillion by 2004, when both figures are measured in constant 2000 dollars.
The 2004 figure was $6.7 trillion when measured in 2004 dollars. With a middling 7 percent return and that $6.7 trillion would generate $469 billion of capital gains, dividends and interest income in the first year alone – income that does not appear in the CBOs tax-based studies of who earns what or in Mr. Johnston’s derived estimate of who owns what. A half trillion here, a few trillion there, and pretty soon it adds up to real money.
I am trying hard to finish writing a text on income and wealth for Greenwood Press. Not a moment too soon, apparently.