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Snapshot for May 17, 2006.
Wealthiest Americans will receive most of the benefits
from the planned tax cuts
Congress is debating taxes on wealth this spring, specifically whether to cut taxes on capital gains, dividends, and estates. Recently published Federal Reserve data on the distribution of wealth make it clear that most of the benefits from such tax cuts will go to a very narrow slice of the population, the wealthiest of America’s wealthy.1
America’s 112 million families had combined wealth of $50.3 trillion in 2004. When those families are ranked by the size of their wealth, however, the top 1%2 alone held $16.8 trillion in wealth, more than a third of the United States’ total wealth and more than the $15.3 trillion held by 90% of U.S. families. The top 1% had average wealth of $15 million per family in contrast to the $22,800 average wealth of the least wealthy 50% of families or the $313,500 in wealth for families ranked between 50% and 90%.
Homes accounted for more than a third of American families’ assets. Primary residences are the asset with the least-skewed ownership, with the top 1% owning primary homes worth $1.9 trillion and the bottom 90% owning $11.8 trillion. That is not the case, however, when it comes to ownership of second homes, a far greater source of wealth for the top 1% ($1.1 trillion) than the bottom 90% ($0.02 trillion).
An examination of other types of assets reveals why cutting taxes on capital gains, dividends, and inheritances favor such a small share of the population. Those three forms of income and wealth are largely associated with three kinds of assets: stock in publicly traded companies, ownership of closely held businesses, and nonresidential real estate. The top 1% of families owned 37% of all stocks, 62% of all closely held businesses, and 47% of nonresidential real estate. Percentages for the bottom 90% were 21%, 10%, and 24%, respectively.
When it comes to the three types of assets most affected by taxes on capital gains, dividends, and estates—the very cuts being debated in Congress—the top 1% had 2.8 times as much wealth as the bottom 90%—$10.9 versus $3.9 trillion. The average combined value of those three kinds of assets was about $10 million for each family in the top 1%, but less than $40,000 for the bottom 90% of families. The average family in the top 1% has about 250 times as much to gain from tax cuts on those assets as a family in the bottom 90%. Enactment of such skewed tax cuts will further exacerbate the already sizable wealth gap.
This week’s Snapshot was written by EPI Research Director Lee Price.
1. Arthur Kinneckell, Federal Reserve Board of Governors, “Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004,” January 30, 2006, http://www.federalreserve.gov/pubs/feds/2006/200613/200613pap.pdf.
2. Families in the top 1% have a net worth of at least $6 million.