Sometimes I hear proposals to fund some programs by taxing the wealthy or confiscating wealth above a certain level. For the purposes of this post, I am not interested in the question of whether this tax is a good idea. (Shocking reveal: I don’t think it’s a good idea.) I just want to know how the money ends up at the top of the American wealth distribution. Here are some numbers from the very useful FRED website maintained by the Federal Reserve Bank of St. Louis.
The top row shows the total net worth of the top 1% of the wealth distribution, which totals approximately $44 trillion. The blue line focuses on the top 0.1% of the wealth distribution, which totals about $20 trillion. For perspective, there are over 120 million households in the United States. So the top 1% consists of 1.2 million households with an average wealth of $36 million. The top 0.1% are comprised of 120,000 households with an average net worth of $166 million. ThereAbout 800 American households have a net worth of more than $1 billion. This is less than 0.001% of the U.S. population, which has a total net worth of $5.7 trillion..
Obviously, the total wealth held by the very rich adds up to a really big chunk of change. For example, let’s say we could scoop up all of the $44 trillion of wealth from the top 1%, or $20 trillion of wealth from the top 1% and go on a spree.
(Of course, even proposing such a measure would be highly impractical. It’s worth emphasizing that taxing wealth is a tricky business, since wealth takes the form of corporate stock or ownership of companies or, in some cases, land, real estate and natural resources. So, to demand that trillions of dollars of wealth be paid to the government, these assets would have to be sold, but it’s not clear why the state would tax wealth at such a high rate, typically at a rate of 1% or less per year. That being said, there is a reason why most European countries that experimented with wealth taxes for a while have abolished them, as discussed here and here .
Remember we can only do this once. Once wealth is taken, it cannot be taken back, and the incentive to accumulate such wealth (in taxable form) will be greatly reduced. But to put that money into perspective, here are some potential uses for the wealth of the top 0.1%:
We could take $20 trillion and give $60,000 checks to all 330 million Americans. Again, we can do this once.
We could take $20 trillion and pay off about half of America’s accumulated federal debt.
we can take Offset most of Social Security shortfall, projected to be $20 trillion For the next 75 years.
Of course, you can add a variety of programs and priorities to this, from education to the power grid and everything else. My point is that even the combined wealth of the very rich is not an infinite amount. In 2024, U.S. GDP will be about $28 trillion, so $20 trillion is equivalent to about 8 to 9 months of U.S. economic output. The 2024 federal budget is nearly $7 trillion, so even $20 trillion is equivalent to about three years of federal spending. Of course, if $20 trillion of wealth were taxed at 1% per year, that would be about $200 billion per year. Although this is a real amount, it is slightly more than the U.S. budget deficit in any given month.
To be clear, I am not here opposing (or opposing) people with very high wealth (or very high income) paying more in taxes. I am pointing out that, in the context of the broader American economy, the potential revenue from taxing billionaires alone is modest, and even the revenue from taxing billionaires is limited. It is not a bottomless purse that can be thrown around again and again for every political need.
Thoughts: There are arithmetic illiterate comments that make the rounds on social media every now and then. Because Jeff Bezos (or Elon Musk or Bill Gates) If the net worth is $100 billion and the world’s population is 7.5 billion, that rich person could give $1 billion to everyone in the world and still have $92.5 billion left over. I will leave it to the reader to decide whether there is an error in this calculation.
