Top Wealth in America: New Estimates and Implications for Taxing the Rich

The paper presented in this Mannheim Applied Seminar uses administrative tax data to estimate top wealth in the United States. It assembles new data that links people to their sources of capital income and develop new methods to estimate the degree of return heterogeneity within asset classes. Disaggregated fixed income data reveal that rich individuals earn much more of their interest income in higher-yielding forms, and have much greater exposure to credit risk. Consequently, in recent years, the interest rate on fixed income at the top is approximately three times higher than the average. Using firm-level characteristics to value firms, it is found that twenty percent of total pass-through business wealth accrues to those with losses. The authors combine this new data on fixed income and pass-through business returns with refined estimates of C-corporation equity, housing, and pension wealth to deliver new capitalized wealth estimates. The approach, which builds on Saez and Zucman (2016) and Bricker, Henriques, and Hansen (2018), reduces bias because wealth and rates of return are correlated. From 1989 to 2016, the top 1%, 0.1%, and 0.01% wealth shares increased by 7.6, 5.1, and 3.0 percentage points, respectively, to 31.5%, 15.0%, and 7.0%. While these changes are less dramatic than some prior estimates, wealth is very concentrated: the top 1% holds nearly as much wealth as either the bottom 90% or the “P90-99” class. The authors discuss implications for income inequality measures, capital tax policy, and savings behavior.