posted July 15, 2012 01:36 AM            

How the Richest 400 People in America Got So Rich

The Atlantic
By Derek Thompson | The Atlantic – Thu, Jul 12, 2012 2:41 PM EDT

[img]http://l2.yimg.com/bt/api/res/1.2/I5p0nDRInl3bpTbFHWmoYA--/YXBwaWQ9eW5ld3M7cT04NTt3PTMxMA--/http://globalfinance.zenfs.com/en_us/Finance/FIN_US_AHTTP_THEATLANTIC/How_the_Riche st_400_People-3a39c32e9b9c48a7b74ba8ca238304d2[/img]

In 1992, the 400th richest person in America made $24 million.

In 2007, the 400th richest person in America made $138 million (or $87 million, inflation-adjusted).

Now, that almost certainly wasn't the same guy. There's a lot of churn at the top of the money pyramid. In all of the 1990s, only 25% of the Fortunate 400 made more than one appearance. But the overall message is the same. The rich keep getting richer.

According to the IRS, which recently released 2009 data from the 400 richest individual income tax returns, the real runaway growth in wealth has come from capital gains. In the last years of the bubble, the "Fortunate 400" made nearly half their income from capital gains (a.k.a.: profit from the rising value of an investment, such as stocks or property) and less than 10% of their income from old-fashioned wages.

The average income of a top-400 earner grew by 650% between 1992 and 2007 to a whopping $344 million. Over that time, the average salary didn't even double. But the average capital gains haul increased by 1,200%. So how do the richest get richer? Not from their wages. From their investments.

Here's a look at the average salary and average capital gains income of a top-400 earner since 1992. Y-axis is labeled in thousands of dollars and all-time highs are noted in the graph.

[img]http://l2.yimg.com/bt/api/res/1.2/mxL1HFPggZQ7s9jXBAXiyA--/YXBwaWQ9eW5ld3M7cT04NTt3PTMxMA--/http://globalfinance.zenfs.com/en_us/Finance/FIN_US_AHTTP_THEATLANTIC/How_the_Riche st_400_People-9291d67b295a689a438817c206a0bce2[/img]

[img]http://l2.yimg.com/bt/api/res/1.2/kJJlVw9hwJsaHWoTgMIWeQ--/YXBwaWQ9eW5ld3M7cT04NTt3PTMxMA--/http://globalfinance.zenfs.com/en_us/Finance/FIN_US_AHTTP_THEATLANTIC/How_the_Riche st_400_People-652eadf57fb07d45ee04402db1bff30c[/img]

Three last things:

(1) Who are these people? As Tim Noah explained on our business page, a 2010 study studied the top 0.1 percent, who currently make at least $1.7 million. That's 14-times less than our Fortunate 400 group, but it's the closest we've got. Four in ten in this group were executives, managers, and supervisors at nonfinancial firms. Eighteen percent were financiers. Next came law (7 percent), medicine (6 percent), and real estate (4 percent). My guess is that the top 400 skews toward finance and chief exec even stronger. A lawyer/doctor making $2 million I can imagine. But $24 million?

(2) Capital gains absolutely dictate the wealth of the richest Americans. As Matt O'Brien graphed for us, that's why the income of the top 0.1 percent hugs the S&P so closely.

(3) Remember that as this is happening, the long-term capital gains tax rate has fallen from 28 percent in 1990 to 20 percent for the latter half of the 1990s to 15 percent under George W. Bush.

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To pay at a 15% tax rate currently as a regular wage earner, your income can't be more than $34k/year.

posted July 15, 2012 10:32 AM            

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Originally posted by Randall:
And it should be even lower than 15 percent. I like 10 percent. It's these investors who keep the doors open so wage earners have a job. It might not make socialists happy, but guess what, we are not all equal financially in a capitalist society. They are not doing nothing. They have taken the risk of investing. Many have done so with real estate, and it is a far cry from doing nothing. They work smarter, not harder, and multiply their efforts. But anyone can buy a piece of real estate with no money or credit and do the same.

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Words of wisdom.

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posted July 15, 2012 11:48 AM            

Capital gains tax constitutes punishment on risk capital formation and capital investment. It robs jobs creation and economic growth.

Get rid of the capital gains tax!

And nothing comes out of nothing. Most of the rich either were born into it, because their ancestors busted their rear ends working hard, or they themselves worked hard and became rich.

posted July 15, 2012 12:26 PM            

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Originally posted by YoursTrulyAlways:
There should be no taxation on capital gains! It constitutes double taxation on corporate dividends and triple taxation on foreign based earnings.

Capital gains tax constitutes punishment on risk capital formation and capital investment. It robs jobs creation and economic growth.

Get rid of the capital gains tax!

And nothing comes out of nothing. Most of the rich either were born into it, because their ancestors busted their rear ends working hard, or they themselves worked hard and became rich.

You don't punish success. You don't envy success. You cherish success. You emulate success and become successful yourself.

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BRILLIANT words

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posted July 15, 2012 01:46 PM            

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It's these investors who keep the doors open so wage earners have a job.

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Conversely, it is also those wage earners who keep the doors open, so investors will want to invest.

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It might not make socialists happy, but guess what, we are not all equal financially in a capitalist society.

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We're not talking about Socialists. Never have been, never will be, etc.

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They are not doing nothing.

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I could invest far easier than I could apply for welfare. That's my point. There's nothing super difficult about investing. You can be as active or passive as you like. You can receive that money that you did virtually nothing to earn, and you can feel justified that you've somehow "earned" it. Anyone that criticizes the ease in collecting that money must be jealous of success or something.

Conservatives love to throw around the term "class warfare" as this idea that poor people are lazy, and are just trying to get something out of the wealthy. The problem with this premise is that if such a class warfare ever did exist, the wealthy would always be winning by a landslide. The poor person working three jobs just to support their family is not at a loss where drive and ambition are concerned. Such a person is not looking for a handout.

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There should be no taxation on capital gains! It constitutes double taxation on corporate dividends and triple taxation on foreign based earnings.

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Taxing work more than investment distorts the economy in favor in capital.
Your argument against capital gains would also work for the worker, right? The corporation has already been taxed, and then the employees paid by that corporation are also taxed. That could be considered as having been taxed twice as well, but it's not. Nor should it be for the investor. Corporate taxes aren't what dictates the action of investors. Return does. The corporation takes responsibility for it's taxes, and the separate entity -the investor- takes responsibility for the taxes on new income. I don't see the investor being the same as the corporation. New personal income is taxed in most cases, so this should be no different.

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Capital gains tax constitutes punishment on risk capital formation and capital investment. It robs jobs creation and economic growth.

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I don't believe there's any rational basis for this statement. You don't pay capital gains on what you've invested. You only pay it on the returns received. Job creation is an outcome of demand for a product. Unless an investor is creating the demand for a product, they are not creating jobs simply by investing in a company. Maybe in the case of venture capitalism the capital could be assured to create some jobs, but otherwise job creation is not a linear outcome of investment.

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And nothing comes out of nothing.

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Nothing can also come out of something. People can lead honorable working lives, and improve neither their station nor their family's.

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You don't punish success.

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Nor do you punish work.

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You cherish success. You emulate success and become successful yourself.

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posted July 15, 2012 02:03 PM            

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Originally posted by Randall:
I agree, YTA. I doubt it will be eliminated, so we can feasibly make it 10 percent. But it should be eliminated entirely. Even Buffet would agree with that. Success should not be punished.

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Dennis Miller has a spot advertising his radio show. He says something like," You work hard. You provide a good or service for others to make their lives better. You become a success and now YOU are the problem"

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posted July 16, 2012 03:28 AM            

Capital Gains that are invested abroad should be taxed. Capital Gains invested in real estate should also be taxed. The salaries of the cops who protect the newly invested real estate cannot come out of thin air. There has to be a balance. 10-12% is a fair value.

In 1792 France, all the capital in the world could not save the rich heads. 5%, 10% or whatever tax paid or not paid, 100% Life was guillotined by the hungry mobs. I would love to send conservative politicians who criticize the poor for not working hard enough to 1792 France, to try and reason with the "lazy peasants"

BTW, any rich man who made wealth by inflating his original C-Corporation share prices during the IPO did not "earn" that money. It is financial trickery of showing 1 share as 10 or even 100, showing intellectual capital as share capital etc. Zuckerberg has earned a million curses.
If the masses know about the Economic System and the futures trading/currency fraud done by JP Morgan Chase et al, there would really be a repeat of 1792 in Wall Street. 4 billion plus lost in options trading. I think 10 million poor Americans can be fed for a couple of years with 4 billion dollars. And no report on who made the 4 billion gain ? The money could not have disappeared into a black hole.

Yes, the small business entrepreneur who slogged away to make better products or offer better services and earn royalties , such a person is a champion whose wealth and success have to be cherished. Such efforts should be taxed the least.

posted July 16, 2012 10:33 AM            

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My point in starting this thread was simply to point out that not all wealthy people are hard workers, and not all poor people are lazy. I also set about setting the record straight on which "class" has the easier access to money not worked for.

posted July 16, 2012 11:00 AM            

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posted July 16, 2012 03:41 PM            

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Originally posted by AcousticGod:
There aren't plenty of jobs to go around, and obviously raising capital gains and/or raising taxes on those doing the best would be the wisest way for the government to raise revenue.

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This is your disconnect AG. You want the government to do things for you. Don't you know by now that they mess everything up. I don't get you. I will say that.

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posted July 16, 2012 04:26 PM            

Incidently, taxing capital gains socks it the worst to veterans, the elderly, orphans, widows and all the social groups you least expect. Who owns the bulk of mutual funds and pension funds in this country? The average CEO owns less than 1% of the company that he works for. The Joe Schmoes of this world own 90% of corporate America.

posted July 16, 2012 04:28 PM            

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Originally posted by YoursTrulyAlways:
Raising tax rates on the wealthy 1% wouldn't produce one-thirtieth of the revenue as raising the tax rate on the middle 75%. So, that "tax the rich" thing wouldn't even begin to be any form of effective strategy.

Incidently, taxing capital gains socks it the worst to veterans, the elderly, orphans, widows and all the social groups you least expect. Who owns the bulk of mutual funds and pension funds in this country? The average CEO owns less than 1% of the company that he works for. The Joe Schmoes of this world own 90% of corporate America.

So, you can talk about taxing the guy in teh Rolls Royce, but you'll ultimately end up also taxing the guy who rides in his Chevy truck to work.

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Brilliant. Well said. It says it all. Right there is the simple truth!

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posted July 16, 2012 04:53 PM            

Second, that assessment of how I am is incorrect. I don't care about how big or little government is as long as it's handling things in a responsible manner.

posted July 16, 2012 05:01 PM            

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Originally posted by AcousticGod:
Ami, that's not a proper reply to what I wrote. Nothing in what I wrote suggests that I want the government to do things for me. I've never been on welfare. I've never used a government program for my benefit (I've contributed to SS, but I've never received a payment). Even college money I was entitled to for my military service went unused. There is no rationale for saying that I want the government to do things for me.

Second, that assessment of how I am is incorrect. I don't care about how big or little government is as long as it's handling things in a responsible manner.

I would appreciate you sticking to the topic at hand if you're going to say anything. It's an inordinate burden to me to keep having to talk about myself rather than dealing with the political debate. If you were able to discern my philosophy from this thread, you'd characterize my philosophy as one offering a fair assessment of the people receiving money for no labor. I've pointed out that there are people on both ends of the income spectrum receiving money without putting in any labor, and shown the irony of one making the other out as lazy. What you seem to have gotten from that is that I want bigger government. That's non-sequitur thinking. There's no basis for your assertion based on what you've read.

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I give up on talking to you AG. To me, you are a sheeple who believes the network news. I have no patience for that, as it gets me angry.

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posted July 16, 2012 05:44 PM            

quote:

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Raising tax rates on the wealthy 1% wouldn't produce one-thirtieth of the revenue as raising the tax rate on the middle 75%. So, that "tax the rich" thing wouldn't even begin to be any form of effective strategy.

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Yes, it would. Why not tax the middle 75%? Because those are the people you need spending money in order to produce DEMAND, which in turn produces JOBS. Taxing the rich helps the government's bottom line balance sheet whilst not hampering demand.

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Incidently, taxing capital gains socks it the worst to veterans, the elderly, orphans, widows and all the social groups you least expect. Who owns the bulk of mutual funds and pension funds in this country? The average CEO owns less than 1% of the company that he works for. The Joe Schmoes of this world own 90% of corporate America.

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If you're suggesting that capital gains should be a progressive tax, I'd be ok with that.

posted July 16, 2012 06:22 PM            

The problem here is that you believe I'm like you. You've suggested that you only get your news from right-wing radio. Therefore you project on to me what YOU do. You listen to only news that goes along with your beliefs, and then you turn and call ME a "sheeple." There's something patently ironic in a person doing that.

Conversely, I'm quite aware of Conservative thought. I grew up Conservative in a Conservative house, with Conservative parents. I come here, and see all the nonsense Jwhop puts up letting me in on the latest Conservative ideas of the day. There's no shortage of well-roundedness where my political knowledge is concerned. You think I'm ignorant of Conservative thought, when I expose myself to plenty.

posted July 17, 2012 12:48 PM            

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posted July 17, 2012 01:51 PM            

I don't mean to make light of the JP Morgan losses, and its closer to being between $7 BN and $9 BN, but I have an insider who actually worked for Ina Drew at JP Morgan's CIO's office (he's now re-assigned and his job was saved because he wasn't directly involved - not saying he wasn't involved.. the treasury office invested excess cash for returns and everyone had to generate large ROAs, risk be damned).

Anyway, Achilles Macris and Bruno Iksil, aka the London Whale, had an effective strategy that worked very well for quite some time.

The first leg was in 2011 and involved a bet that there will be higher sub-investment grade bond credit defaults over the medium horizon. This held true and it was a bet that any reasonable person would have taken. It involved going short on bonds.

The second leg involved a two-step synthetic CDS "hedge," to sell/underwrite CDS through 2017 and buy CDS protection through 2012. It says that we expect the short term to be lousy for junk bonds, which is reasonable, and that's why we buy CDS protection, and hence the "hedge." The second step says that the economy should improve over the medium term, and that from 2013 though 2017, there would be substantial economic recovery. Things look good for strong investment grade bonds.

Naturally, it coincides with the belief that a second term Obama adminsitration or a new adminstration will clean up the mess left behind after a first term Obama administration. Nobody likes Geithner, even Jamie Dimon, a staunch Democrat.

The problem is that the second step was executed in the first quarter of 2012. In February and March 2012, over 250,000 jobs were created in each month. It was really looking good for the Obama administration and even I thought nobody had a chance. Obama would have looked like a freaking hero if that had been sustained.

After March 2012, the job creation numbers dwindled to under 55K jobs per month. The credit spreads widened given economic deterioration. As expected, the junk bond market continued to stink. However, instead of improve, the strong investment grade bond market dropped like a rock too.

The losses on JP Morgan's books are unrealized derivative losses recorded as part of US GAAP. They are not realized losses. The magnitude of the unrealized losses has to be placed in context of $22 BILLION IN REALIZED ACTUAL GAINS reflected on JP Morgan's financial statements over the past two years.

Jamie Dimon has delivered $22 Billion in actual retained earnings contribution based on this strategy, against perhaps up to $9 billion of Losses, resulting in a net gain of at least $11 Billion.

Therefore, before anyone starts crying wolf about evil bankers robbing granny of her social security checks, please think again.

posted July 17, 2012 02:20 PM            

quote:

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Originally posted by AcousticGod:
If you're suggesting that capital gains should be a progressive tax, I'd be ok with that.

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Capital gains should not be taxed. Period.

There should be no re-distribution of anything. Period.

The solution to not being able to afford is to do without. Period.