What Is the Average Net Worth of the Top 1%?

Many people perceive being wealthy as having a nice house, a late-model car, and a summer cottage. But the kind of money that the wealthiest 1% of the world's households has dwarfed this concept. This segment of the population owns large portions of major corporations, multibillion-dollar investment funds, islands in the Caribbean, and even rocket ships that are taking them into outer space.

The average net worth of the 1%, also known as the richest 1% of the global population's households, has mushroomed over the past two decades. It now towers higher above the net worth of the average citizen than ever before. Here are some of the basic facts about how the 1% in the U.S. lives.

America's Richest: A Demographic Breakdown

Before looking at the demographics of the top 1% in the U.S., it's important to understand just how much this portion of the U.S. population earns: an individual would need to earn an average of $401,622 per year in order to join the top 1%, and a household would need an income of $570,00.

In order to become part of the top 0.01% a household would need the staggering figure of over $3 million annually.

Compare that to the median real earnings of all workers in the United States in 2021, which was $45,470 for individuals and $70,784 for households.

Although the media and politicians have largely portrayed this group as Wall Street fat cats, demographic analysis reveals a 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 their wealth.

According to Internal Revenue Service (IRS) data, the top 1% in the U.S. earned over 20% of the total adjusted gross income (AGI) in the U.S. and paid just under 40% of all federal income taxes. They also accounted for just under one-third of all charitable donations.

The World's Richest

The number of billionaires counted for Forbes’  35th annual list of the world’s wealthiest exploded to an unprecedented 2,755 in 2021—660 more than in 2020. Altogether, they were worth $13.1 trillion, up from $8 trillion on the previous year's list. Forbes' list for 2022 changes slightly, accounting for 2,668 billionaires in the world with a cumulative wealth valued at $12.7 trillion.

The Widening Wealth Gap

According to the Economic Policy Institute, the net worth of the top 1% of American households rose steadily through the second half of the 20th century and beyond. For instance:

• The wealthiest 1% in the U.S. had net worths equal to about 125 times that of the average American household in 1962.
• By 2009, their net worths were about 225 times the net worth of the average household.
• The gap between the richest and the poorest in the U.S. more than doubled between 1982 and 2016.

The minimum net worth of the top 1% of households is roughly $11.1 million. The top 10% have a net worth of about $1.2 million.

The growth in the wealth of middle-class Americans virtually ground to a halt somewhere around the turn of the 21st century. The median income for middle-class Americans rose at an average rate of 1.2% per year from 1970 to the year 2000. From 2000 to 2018, the rate slowed to 0.3% per year.

The wealth of the top 1% continues to outstrip that of the entire middle class. In fact, the top earners hold more wealth than the middle and upper-middle classes put together.

There are a variety of reasons for the disparity, but one important factor is outsized stock ownership among the richest Americans. The 1% own more than 50% of the equity shares in both private and public companies. Much of their wealth comes from soaring stock prices.

That, of course, can leave them vulnerable to declines in stock prices. But they may get even richer if they take some of those stock gains and reinvest the money in investments that cater to rich investors, like hedge funds and private equity ventures.

Underlying Causes of the Wealth Gap

Much of the growing disparity can be traced to the steady flow of tax breaks for income, gifts, and estate taxes. These can disproportionately advantage rich Americans. For example, the first $12.06 million of an inheritance is exempt from taxes as of 2022. That figure rises to $12.92 million in 2023.

Although the middle class also benefits from this reduction in taxes, it allows the wealthy to retain a much greater portion of their assets and pass them on to their heirs. In fact, there's been a lot of debate about how the Tax Cuts and Jobs Act (TCJA) of 2017, which was passed by the Trump administration, influenced the wealthiest Americans.

The Trump White House consistently defended the bill, saying it helped put money back in the pockets of the middle class. Others disagreed.

In their book, The Triumph of Injustice (2019), economists Emmanuel Saez and Gabriel Zucman argued that the tax reform bill gave the wealthiest households an effective lower average tax rate than the rest of the U.S. population.

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 their wealth, lobbying for tax breaks, and not contributing their fair share in taxes.

Many politicians want more taxes on the wealthy. Senator Elizabeth Warren (D-MA) proposed a tax on ultra-millionaires as part of her 2016 campaign to become the Democratic presidential candidate for the 2020 election. Senator Bernie Sanders (I-VT), also a candidate, pushed for an estate tax hike, meaning billionaire heirs would pay more in taxes. But this hasn't gotten much traction as of yet.

President Joe Biden managed to get through some measures that pursue new revenue sources from wealthy Americans in his Inflation Reduction Act of 2022. These include:

• Additional IRS funding to pursue unpaid taxes due from those who earn $400,000 or more.
• A minimum corporate tax of 15%.
• A 1% tax surcharge on stock buybacks to discourage excessive use of profits to reward shareholders and executives.
  

The Bottom Line

Like the poor, the rich are always with us: Disparity in income is inevitable in a capitalist society and a free-enterprise economy. However, the fact that the disparity seems to be increasing is a source of growing concern for many.

The uneven impact of the COVID-19 pandemic shed a brighter light on an issue that had been developing for years: In the U.S., the share of the nation's wealth held by the top 1% increased from 23% to nearly 32% between 1989 and 2018.

Even billionaires such as Warren Buffett have expressed amazement that they often pay less in taxes than their employees do. Whether the 1% should be left alone or whether their wealth should be somehow shared will doubtless be an ongoing debate.

Correction—Feb. 7, 2022: This article has been updated from a previous version to specify the distinction between the U.S. and global statistics on wealth.