The Problem of Capital Income

The Problem of Capital Income


America is rich. We have a higher income per person than almost
any other country in the world, except for a few tiny ones with lots of oil. And we have $71 trillion in household wealth. But where does that income come from? Everyone knows you can get paid for working. Economists call that labor income and it makes
up about 70 percent of our total national income. But there’s also income that comes from merely
owning wealth. This is called capital income. Stuff like rent payments, interest on loans,
or stock dividends also give you income. Capital income makes up about 30 percent of
the national total and you don’t even have to work for it. Pretty nice! America has a lot of capital income. If you divided up all the wealth in the country
equally, each person would have over $220,000 of wealth, which in turn would produce $15,000
of income each year. Wow! But there’s a problem. Ownership of wealth is extremely concentrated. In reality, the bottom half of the wealth
ladder owns an average of $349 while the top 1 percent owns an average of over $16 million. That means the bottom half collects an average
of $826 in capital income per year while the top 1 percent collects an average of over
$764,000 per year. That income is also a big portion of the top
1 percent’s total While the bottom half gets little or no capital income, almost 60 percent
of the top 1 percent’s income is capital income. In fact, since the year 2000, all of the income
gains of the top 1 percent have been capital income, and all without having to lift a finger. But wait there’s more. Ownership of wealth is even more concentrated
the further you go up the income ladder. The top 0.1 percent own an average of $83
million in wealth and collect $4 million in capital income each year. Finally the top one percent of the top one
percent own an average of $420 million and rake in $21 million every single year in capital
income. So the richer people are the greater share
of their income comes from capital. Fully three quarters of the top one percent
of the top one percent’s income comes from capital. All this makes capital ownership a major engine
of inequality. More wealth means more income, which can be
used to get more wealth and more income. The rich get richer and everyone else is left
in the dust. Inequality is a big problem. If we are going to fix it, we must confront
the problem of capital income.

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