Jimnew 

Who Are The 1%?

The idea of the 1% vs. the 99% gained popularity in 2011 when the activist group, Occupy Wall Street (OWS), began publicly using the theme during their protests.  The percent comparison refers to income disparity.  OWS often employed banners stating "We are the 99%" to reinforce their message.  Their movement has since morphed into a more political debate over income inequality.  But who are the 1%, and are they the right group to focus calls of unfairness?  In this edition of Financially

Speaking I will try to answer those questions.  As always, comments and opposing views are welcome. 

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Jim Thibault Signature 

Jim Thibault

Managing Partner

jthibault@

barronfinancialgroup.com

barronfinancialgroup.com

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A Starting Point

I think the best place to start this discussion is to better identify the 1%.  As of 2011 Federal tax data, an income of $389,000 puts you in the top 1% of U.S. household earners.  This group comprises about 1.4 million people and earns almost 19% of all income in the U.S.  Along that same line, the group of 1% earners (a.k.a. one-percenters) pays about 35% of all income taxes.  That statistic indicates an even larger disparity in tax payments vs. income, but that is how our progressive tax system is designed...those who make more pay more.

 

To better identify the 1%, it helps to look at other income brackets.  For instance, an annual income of $33,000 puts an earner just over the mid-point and into the top 50% of all income earners.  The relation of the top 1% to this mid-point income is over 11 to 1.  On the opposite end of the spectrum, we have the 0.1% of earners with annual incomes over $600,000 and the 0.01% with incomes over $30,000,000 per year.  The relation of the 0.01% earners to the 1% is over 75 to 1.  That disparity, within the top 1% of income earners, is often missed in the debate over income inequality.  Perhaps even more important than these income levels is the rate at which these income categories are growing their share of total national wealth.  Here we see the wealth share of a one-percenter growing at the same rate as the mid-point 50% earners (i.e. not growing at all).  That is correct, even those making $389,000 per year are not gaining wealth share.  Since 1990 the 0.1% has seen its wealth share grow almost 60% and the 0.01% wealth share has grown nearly 200%.  If the 1% are considered rich, then these groups are the super-rich and the uber-rich.

  

Adding Some Context 

One-percenters generate their income in a variety of ways such as professional services including doctors, lawyers and accountants along with property service providers such as full-service construction companies and specialty contractors.  Having worked with people from the 1% income group, I can tell you that they typically live in nice homes and drive nice cars.  They often send their children to private schools, some even have second homes for vacation or retirement.  However, unlike the mass media images often seen, people at this level do not own yachts, or have homes on multiple continents.  They do not have chauffeurs who drive them to and from work or to their children's soccer games.  The 1% of income earners are often self-employed, work very hard and contribute in a positive way to our economy and society.  For example, many physician's or contractor's offices employ support staffs paid above the minimum wage, with retirement plans offering employer matching.  These are not the Robber Baron's often implied on OWS banners.

 

As the debate over income inequality continues, it is important to recognize the political implications.  With the top married-filing-jointly tax bracket starting at $450,000 it seems clear that the uber-rich are not seen (or taxed) as being in a class of their own.  Not surprisingly, these households tend to be the ones making the largest political contributions.  Looking at individual donors for the 2014 election cycle, #99 (the bottom of the published list) gave $143,000 to political parties.  I highly doubt this was a one-percenter making $389,000 and giving away more than one-third of their income.  The #1 donor gave over $2 million, far more than a one-percenter.

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