We all should know by now that income inequality in this country is bad and has been getting worse for some time. However, not all income is the same, so where exactly are the top 1% getting their money from?
For a starting point, check out the graph below:
(Data from CBO.)
We see here four major sources of income:
- Labor income (what you get paid for working)
- Business income (what your businesses get paid)
- Capital income (what your assets and investments pay you via dividends, rent, etc.)
- Capital gains (what you get by selling your assets and investments)
If some of these are not part of your day-to-day experience, don’t feel too lonely; that’s true for many other people, too. After all, the top 1% these days collect more than two-fifths of business income, nearly half of capital income, and three-quarters of capital gains.
Now, do small business owners work incredibly hard for their business income? Absolutely. Are there many small business owners in the top 1%? Not so much. Simply earning income from these sources does not put you in the 1%.
Instead, the 1% tend to be the people with early access to the resources necessary to start drawing income from several of these areas without putting in the same kind of start-up work, much less taking on the same kind of risk, as small business owners. They have large trust funds or investment portfolios given to them by their family. There are precious few “bootstrap” stories available these days; the best way to get into the 1% is to be born into the 1%.
Are exceptions possible? Sure. But the general trend is this: the richest people in this country have continued to increase their share of overall income in every income category for the past several decades.
The least well-off have suffered as a result. See how the richest 1% are splitting 8.9% of labor income? The bottom 20% are splitting 2.6% of labor income. The bottom 40% are splitting 10.7% (including that 2.6% for the bottom quintile).
This is not OK. We have ended up with a self-perpetuating aristocracy, and it’s time to start talking about how we realize the dream of a United States where anyone has a fair shot at the top. We’re pretty far away from that right now.