Wealth and Income Distribution

I keep having trouble getting my head around how wealth is distributed in America — or maybe just that I don’t seem to explain it well enough to other people. There’s an article, “Who Rules America: Wealth, Income, and Power“, that looks into the details. Most of the data is only up to 2007 but the suggestion is that things have gotten worse since the recession:

So far there are only tentative projections … there has been an “astounding” 36.1% drop in the wealth (marketable assets) of the median household since the peak of the housing bubble in 2007. By contrast, the wealth of the top 1% of households dropped by far less: just 11.1%. So as of April 2010, it looks like the wealth distribution is even more unequal than it was in 2007.

The following shows how wealth is distributed but it’s a little misleading if you don’t read the labels. The “pie” is all wealth but each slice represents a different percentage of households. For example, the big slice represents 1% of households (about 1.1 million) and all the other slices represent about 109 million households.

WealthDistribution1

Another way of looking at similar data is this chart that summarizes a survey asking people how they think wealth is distributed and also how they think the ideal should be shaped. The top most bar represents how wealth is actually distributed. Note that the bottom 40% of households don’t even show up in the top most bar:

Actual estimated ideal wealth distribution

In case you are thinking this is normal, the article includes this information over time and things are only getting worse.

Federal Estate and Gift Taxes

The Congressional Budget Office (CBO) has a report on Federal Estate and Gift Taxes. One of the interesting things is only 0.7% or 17,400 of estates are actually affected by the estate tax.
grab-001.png

In 2000, before EGTRRA was enacted, 51,200 estates were taxable, representing 2.2 percent of adult deaths in that year. EGTRRA reduced the percentage of estates that were taxable. For example, 17,400 taxable estate tax returns were filed in 2007; most were for deaths in 2006, when the effective exemption amount was $2 million, representing about 0.7 percent of adult deaths in that year.

Another concern is how the estate tax affects family farms and small businesses. The report says about 1,100 farms are affected. In 2000, when the exemption was only $675,000 vs the $4 million today, only 138 of farmer’s estates didn’t have enough liquid assets (cash) to pay the estate tax. Liquid assets include trusts which could be used to pay the taxes. Additionally, there are many provisions such as 15 year, low interest rates loans to help minimize the burden.