Many people perceive being wealthy as simply having a nice house, money in the bank, maybe a vacation home, and a pleasure yacht. But the kind of money that the wealthiest one percent of the world's population has dwarfs this concept.
This segment of the population owns entire corporations, multi-billion-dollar investment funds, islands in the Caribbean, and may be able to start buying trips to the moon. But whatever you think of the one percent, the net worth of the richest group of humanity has mushroomed over the past two decades and now towers further above the net worth of the average citizen than ever before. Here are some of the basic facts about this.
- A person would need to earn an average of $515,371 per year in order to join the top 1%.
- Although the net worth of the middle class is rising, the top 1% has more opportunities to grow its wealth.
- The widening wealth and income gaps are largely due to tax breaks as well as the decline in labor unions.
- The United States has the most billionaires in the world.
Before looking at the demographics of the top 1%, it's important to understand just how much this portion of the population earns. The minimum requirement to gain entry into the top 1% club is an annual income of $515,371 as of 2017.
That's a far cry from the annual income reported by the average taxpayer of $41,740. The wealth gap in the United States continues to rise, with about 1.4 million people falling into the top 1%. Those who want to become part of the top 0.001% would need to make at least $63.4 million annually.
Although the media and politicians have largely portrayed this group as greedy, uncaring Wall Street fat cats, demographic analysis reveals a very different picture. The wealthiest 1% are spread across many industries and come from many backgrounds. They include medical professionals, entrepreneurs, and executives, as well as those who inherited wealth.
According to Bloomberg, the top 1% earned 21% of income in the U.S. and paid 38.5% in federal income taxes. They also accounted for just under a third of all charitable donations.
A Worldwide Condition
The population of billionaires amounted to 2,825 globally in 2019, up 8.5% from 2018.
There were 834 billionaires in North America and 847 in Europe, though North America's billionaires had more wealth at $3.5 trillion compared to $2.5 trillion to that of Europe's.
China and Germany rounded out the top three countries with the number of billionaires. China had 342 with a combined wealth of $1.2 trillion and Germany listed 153 with $477 billion in combined wealth. The U.S beat out both for the top spot with 788 billionaires for a total wealth of $3.4 trillion.
Russia, Switzerland, the U.K., Hong Kong, India, Saudi Arabia, and France round out the top 10.
The Widening Gap
The Economic Policy Institute reports that the net worth of the top 1% of wealthy Americans has risen substantially. In 1962, the wealthiest 1% had net worths equal to approximately 125 times that of the average American household. Their net worths were shown to be approximately 225 times the net worth of the average household in 2009. The gap between the richest and the poorest has more than doubled from 1982 to 2016.
The minimum net worth of the top 1% is roughly $11.1 million in 2019. The top 10%, on the other hand, has a net worth of about $1.2 million. The wealth of the middle class is also rising, but primarily it rose between 1970 and 2000; median income increased by 41% during this time at an annual average rate of 1.2%. From 2000 to 2018, this was 0.3%.
The wealth of the top 1% continues to go beyond that of the middle class. In fact, the top earners hold more wealth than the middle and upper-middle classes put together. This is due to a number of reasons including the fact that these people own more than 50% of the equity in both private and public companies. And they've also benefited from surges in the stock market. These gains help them reinvest their money back into exclusive investments like hedge funds and private equity.
Much of the growing disparity can be traced to tax breaks on income, gift, and estate taxes, as well as the decline of labor unions in America. Although the middle class also benefited somewhat from the reduction in taxes, it allowed the wealthy to retain a much greater portion of their assets and pass them on to their heirs.
As of Feb. 24, 2021, the richest person in the world is Jeff Bezos, with a net worth of $185 billion.
In fact, there's been a lot of debate about how the Tax Cuts and Jobs Act (TCJA) of 2017—passed by the Trump administration—has influenced the wealthiest Americans. While the Trump White House has consistently defended the bill, saying it's helping put money back in the pockets of the middle class, naysayers disagree, saying the tax reform bill gives the country's wealthiest people a lower tax rate than those who fall in the bottom 50%: 23% versus 24.2%.
The technology boom also added new members to the top percentile of the wealthy, as shown in the Forbes annual list of the 400 wealthiest Americans. Their members' combined net worth equaled an unbelievable $2.96 trillion in 2020.
Criticism of the Top 1%
There's been a lot of criticism of the world's ultra-rich, especially those living in the United States. They've been accused of hoarding wealth, lobbying for tax breaks, and not contributing their fair share. The criticism has been so pronounced that politicians like Elizabeth Warren and Bernie Sanders are calling for more taxes on the wealthy.
Warren proposed a tax on ultra-millionaires as part of her campaign to become the Democratic presidential candidate for the 2020 election. Sanders, on the other hand, pushed for a hike on the estate tax, meaning billionaire heirs would pay more in taxes. Their rationale? Taxing the ultra-rich would help cut down on the nation's income inequality.
The Bottom Line
The wealthiest 1% plays a major role in the shape and direction of the economy and society. Regardless of how they are perceived, their economic dominance of the world is almost certain to continue for the foreseeable future.