America's Wealth Distribution, Part 2: Middle Class: Trends in Net Worth Distribution by Income Quantile.
This
is the first of a pair of pages which show trends in how America's
household Net Worth is distributed. The data source is the Survey
of Consumer Finances Chartbook 2007.
They follow Part 1, which shows detail on Net Worth distribution in 2007. Part 3, by Net Worth Quantile, is here.
While the distribution of wealth and the distribution of income are both rather concentrated, they are different distributions. That is, a young high-earning couple with two jobs on Wall Street may not yet have accumulated much in the way of Net Worth, but their income could place them in the top 5% or 1% of the income distribution. People with a lot of assets may not need or want to earn a great deal of income in order to live comfortably; even if their assets produce few dividends, they can sell off some each year to meet their needs. Also, assets which appreciate year to year, such as urban land and natural resources produce so-called "capital" gains which the owners do not "recognize" until they sell. Many of the highest income families in any particular year are people who have cashed in on an asset which has been quietly appreciating for a number of years, not incurring any taxes or notice from the IRS; such gains are taxed at just 15%, the same rate at which wage income (after deductions and exemptions) between $16,000 and $68,000 is taxed for a married couple filing jointly. (If you are interested in the relationship between income and wealth distributions, you might appreciate some of the graphics contained in Ponds and Streams: Wealth and Income in the United States, 1989 to 2007.)
This page shows, by quantile of income, how NETWORTH is distributed, and what has happened to this distribution between 1989 and 2007. Part 3 shows the distribution of NETWORTH according to quantiles of NETWORTH. As with Parts 1 and 3, the concentration of NETWORTH is likely understated, because the SCF omits the Fortune 400 families from the study. Their aggregate wealth and income is equal to the aggregate holdings of a large segment of America. (They represent about 1% of the net worth; this would be added to both numerator and denominator, increasing by about 1% the share of any quantile they're part of, and reducing the share of any quantile that omits them.)
This page was inspired, in part, by my puzzlement about why Tea Party enthusiasts are so incensed about redistribution of income to those below them on the income spectrum. A comment I read online recently made some sense to me:
"If you are “middle class” and you already feel taxed to the hilt. And someone comes along saying they want “rich” people to pay more taxes, well, it isn’t rocket science for the “rich” people to come along and tell the “middle class” hey! they’re robbing “us” blind!!!!"
The Chartbook, page 43, provides the mean value of net worth, by income
quantile, for each of the 7 triennial studies. From that, I've computed the
aggregate holdings for each quantile in order to calculate the share of
aggregate holdings for each quantile. My calculations overstate the holdings of the
bottom quintile somewhat, because they are based on the mean holdings
for those with holdings, and not all households actually have
holdings. But any overstatement works out to be trivial given the magnitude of the other figures; see column 1 in Table 1. (All are in 2007
dollars.)
Table 1: Mean value of net
worth for families with holdings, by income
quantile [000's of 2007 dollars) |
||||||
|
Quantile of Income | |||||
SCF Year |
Bottom Quintile [20%] |
Second Quintile [20%] |
Middle Quintile [20%] |
Fourth Quintile [20%] |
Second Decile [10%] |
Top Decile [10%] |
1989 | $ 39.7 | $ 105.8 | $ 163.1 | $ 219.0 | $ 358.0 | $ 1,579.6 |
1992 | 47.6 | 92.9 | 146.4 | 203.8 | 327.6 | 1,390.5 |
1995 | 60.1 | 106.9 | 138.3 | 218.1 | 348.1 | 1,471.6 |
1998 | 60.8 | 122.4 | 161.0 | 262.7 | 415.0 | 1,971.9 |
2001 | 61.8 | 134.8 | 190.3 | 344.3 | 534.8 | 2,650.7 |
2004 | 79.8 | 133.5 | 213.8 | 375.1 | 538.0 | 2,792.0 |
2007 | 105.2 | 135.0 | 210.4 | 375.8 | 609.1 | 3,315.6 |
source:
SCF Chartbook, page 43 Note: these are the mean holdings for families with holdings |
The average NETWORTH among families in the middle income quintile in 2007 was $210,400. That is not the same as the median, which was $88,100. (That is, half of families in the middle income quintile had NETWORTH higher than $88,100, half had less. The average is always higher than the median, which means that most of us are below average. In fact, according to the Chartbook, the median NW in the fourth income quintile was $205,800.)
Multiplying the average holdings in each quantile by the percentage of households in that quantile, I get this. Notice that this does not account for the increase in population from one period to another -- but every quantile grew by the same amount. Keeping in mind that the first four quantiles are all of equal sizes -- and the last two together the same size as the others, the differences are striking:Table 2:
Aggregate Net Worth Dollars by Income Quantile |
|||||||
Quantile of Income | Total | ||||||
SCF Year |
Bottom Quintile | Second Quintile | Middle Quintile | Fourth Quintile | Second Decile | Top Decile |
|
1989 |
794 | 2,116 | 3,262 | 4,380 | 3,580 | 15,796 | 29,928 |
1992 |
952 | 1,858 | 2,928 | 4,076 | 3,276 | 13,905 | 26,995 |
1995 |
1,202 | 2,138 | 2,766 | 4,362 | 3,481 | 14,716 | 28,665 |
1998 |
1,216 | 2,448 | 3,220 | 5,254 | 4,150 | 19,719 | 36,007 |
2001 |
1,236 | 2,696 | 3,806 | 6,886 | 5,348 | 26,507 | 46,479 |
2004 |
1,596 | 2,670 | 4,276 | 7,502 | 5,380 | 27,920 | 49,344 |
2007 |
2,104 | 2,700 | 4,208 | 7,516 | 6,091 | 33,156 | 55,775 |
source:
SCF Chartbook, 2007, page 43, and my calculations. Note that these are calculated from Table 1, multiplying by the percentage of households in that quantile. This does not account for population growth, but does reflect the shares each holds. It overstates holdings in the bottom income quintile, since not all households have positive net worth, and, as noted elsewhere, understates holdings for the top quantile due to the omission of the Forbes 400 families from the SCF sample. |
Next, we calculate the shares of Net Worth held by each income quantile:
Table 3:
Shares of Net Worth by Income Quantile
|
|||||||
Quantile of Income | Total | ||||||
SCF Year |
Bottom Quintile | Second Quintile | Middle Quintile | Fourth Quintile | Second Decile | Top Decile |
|
1989 |
2.7% | 7.1% | 10.9% | 14.6% | 12.0% | 52.8% | 100.0% |
1992 |
3.5% | 6.9% | 10.8% | 15.1% | 12.1% | 51.5% | 100.0% |
1995 |
4.2% | 7.5% | 9.6% | 15.2% | 12.1% | 51.3% | 100.0% |
1998 |
3.4% | 6.8% | 8.9% | 14.6% | 11.5% | 54.8% | 100.0% |
2001 |
2.7% | 5.8% | 8.2% | 14.8% | 11.5% | 57.0% | 100.0% |
2004 |
3.2% | 5.4% | 8.7% | 15.2% | 10.9% | 56.6% | 100.0% |
2007 |
3.8% | 4.8% | 7.5% | 13.5% | 10.9% | 59.4% | 100.0% |
point change, 1989 to 2007 |
+ 1.1 pts |
- 3.3 pts |
- 3.4 pts |
- 1.1 pts |
- 1.1 pts |
+ 6.6 pts |
|
Source:
SCF Chartbook 2007 and my calculations. See Notes for Table 2. |
If you explore Table 3, it becomes evident that since 1989, the top 10% of Income recipients have increased their share of America's Net Worth from 52.8% in 1989 to 59.4% in 2007. Depending on how you define "Middle Class," here's what you get:
1. If the Middle Class is the middle 60% of the income distribution, the Middle Class has seen its share of the Net Worth drop from 32.6% to 25.9%. But of the 6.7 percentage points they've lost, 1.1 was picked up by the bottom 20% of the income distribution, and 5.7 points went to the top 20%. So it seems a bit puzzling that the Tea Party enthusiasts are complaining about "wealth redistribution to the poorest." It seems misdirected. (What was it the bank robber said about why he robbed banks?)
Table 4: Shares
of Net Worth, by Income Quantile |
|||
SCF Year |
Income Quantile |
||
Bottom 20% |
Middle 60% |
Top 20% |
|
1989 |
2.7% | 32.6% | 64.7% |
1992 |
3.5% | 32.8% | 63.6% |
1995 |
4.2% | 32.3% | 63.5% |
1998 |
3.4% | 30.3% | 66.3% |
2001 |
2.7% | 28.8% | 68.5% |
2004 |
3.2% | 29.3% | 67.5% |
2007 |
3.8% | 25.9% | 70.4% |
pt chg 1989-2007 |
+ 1.1 pts | - 6.6 pts |
+ 5.7 pts |
The Tea Party folks seem to have little curiosity about how wealth that was in the middle class in 1989 has slid into the top 20%.
2. If one defines the Middle Class as the 50% of us between the 40th percentile and the 90th, here's how the same data looks:
Table 5: Shares of Net Worth by Income Quantile | |||
SCF Year |
Income Quantile |
||
Bottom 40% |
Next 50% |
Top 10% |
|
1989 |
9.7% | 37.5% | 52.8% |
1992 |
10.4% | 38.1% | 51.5% |
1995 |
11.7% | 37.0% | 51.3% |
1998 |
10.2% | 35.1% | 54.8% |
2001 |
8.5% | 34.5% | 57.0% |
2004 |
8.6% | 34.8% | 56.6% |
2007 |
8.6% | 31.9% | 59.4% |
pt chg 1989-2007 |
- 1.1 pts |
- 5.6 pts |
+ 6.6 pts |
3. Finally, if one defines the Middle Class as the 30% of us between the 60th and 90th percentiles, here's how the Net Worth distribution looks:
Table 6: Shares of Net Worth by Income Quantile | |||
SCF Year | Income Quantile |
||
Bottom 60% |
Next 30% |
Top 10% |
|
1989 |
20.6% | 26.6% | 52.8% |
1992 |
21.3% | 27.2% | 51.5% |
1995 |
21.3% | 27.4% | 51.3% |
1998 |
19.1% | 26.1% | 54.8% |
2001 |
16.6% | 26.3% | 57.0% |
2004 |
17.3% | 26.1% | 56.6% |
2007 |
16.2% | 24.4% | 59.4% |
pt chg 1989-2007 | - 4.2 pts |
- 2.2 pts |
+ 6.6 pts |
The Bottom 60% have lost 4.2 out of 20.6, or just over 20% of their 1989 share. The Next 30% have lost 2.2 out of 26.6, or about 8% of their 1989 share. The Top 10% have gained 6.6 on top of their 1989 52.8, or over 12%. What would cause the 30% to be complaining about Bottom 60%, rather than the Top 10%? Might it somehow relate to the sort of advertising we saw some years back about "saving the family farm from estate taxes" which turned out not to benefit ANY farming families, but was financed by a coalition of wealthy families who made their money in other ways? (See David Cay Johnston's book "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich -- and Cheat Everybody Else", particularly Chapter 6.)
Is this progress? As time goes on, and technological progress continues, and public investment in effective infrastructure continues, and we invest in education and public health, and all sorts of public goods which should elevate us all, the NETWORTH share of the highest income portion of our society grows by leaps and bounds, and the share going to the remainder of us falls.
By this time, I suspect someone is going to point out that over the course of 18 years, some people who were in the bottom income group, by whatever quantile definition you choose, are likely to have advanced into a higher income group, so what's the problem? Our low-income 18 year old becomes a 36 year old; our 36 year old a 54 year old -- and our 54 year old a 72 year old. (You can find the age-related income and net worth data in the Chartbook.) But relatively few of us ever make it into the top 10%, where the bulk of the goodies go.
The kinds of assets held by our highest-income people seem to be appreciating faster than those of the rest of us. (They're also more likely to have spare cash and borrowing power for down payment and mortgages on same, at favorable terms.) This is consistent with the notion that part of what we're seeing is the appreciation of well-located land -- the kind that sits under Manhattan condos and office buildings and suburban single-family homes. And it is consistent with the notion that ownership of corporate stock and privately held businesses often includes the ownership of such assets and of nonrenewable natural resources -- oil, water rights, airport landing slots, geosynchronous orbits, electromagnetic spectrum, and a host of other such assets. All these things collect economic rent from the rest of us. Few of us understand much about it; even college and graduate-level economics majors don't learn much about it at most colleges and universities.
In Progress and Poverty, Henry George wrote of "an immense wedge . . . being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down." If you'd like to understand why wealth concentrates, I commend Progress and Poverty to your attention. And that book provides a simple, logical, just, efficient and economy-invigorating remedy, which can put us well on the road to solving some of our supposedly-intractable social, economic, climate and energy problems.
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