When F. Scott Fitzgerald pronounced that the very rich “are different from
you and me,” Ernest Hemingway’s famously dismissive response was: “Yes, they
have more money.” Today he might well add: much, much, much more money.
The people at the top of America’s money pyramid have so prospered in recent
years that they have pulled far ahead of the rest of the population, an analysis
of tax records and other government data by The New York Times shows. They have
even left behind people making hundreds of thousands of dollars a year.
Call them the hyper-rich.
They are not just a few Croesus-like rarities. Draw a line under the top 0.1
percent of income earners – the top one-thousandth. Above that line are about
145,000 taxpayers, each with at least $1.6 million in income and often much
The average income for the top 0.1 percent was $3 million in 2002, the latest
year for which averages are available. That number is two and a half times the
$1.2 million, adjusted for inflation, that group reported in 1980. No other
income group rose nearly as fast.
The share of the nation’s income earned by those in this uppermost category
has more than doubled since 1980, to 7.4 percent in 2002. The share of income
earned by the rest of the top 10 percent rose far less, and the share earned by
the bottom 90 percent fell.
Next, examine the net worth of American households. The group with homes,
investments and other assets worth more than $10 million comprised 338,400
households in 2001, the last year for which data are available. The number has
grown more than 400 percent since 1980, after adjusting for inflation, while the
total number of households has grown only 27 percent.
The Bush administration tax cuts stand to widen the gap between the
hyper-rich and the rest of America. The merely rich, making hundreds of
thousands of dollars a year, will shoulder a disproportionate share of the tax
President Bush said during the third election debate last October that most
of the tax cuts went to low- and middle-income Americans. In fact, most – 53
percent – will go to people with incomes in the top 10 percent over the first 15
years of the cuts, which began in 2001 and would have to be reauthorized in
2010. And more than 15 percent will go just to the top 0.1 percent, those
The Times set out to create a financial portrait of the very richest
Americans, how their incomes have changed over the decades and how the tax cuts
will affect them. It is no secret that the gap between the rich and the poor has
grown, but the extent to which the richest are leaving everyone else behind is
not widely known.
The Treasury Department uses a computer model to examine the effects of tax
cuts on various income groups but does not look in detail fine enough to
differentiate among those within the top 1 percent. To determine those
differences, The Times relied on a computer model based on the Treasury’s.
Experts at organizations representing a range of views, including the Heritage
Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the
projections and said they were reasonable, and the Treasury Department said
through a spokesman that the model was reliable.
The analysis also found the following:
¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes – a
minimum of $87 million in 2000, the last year for which the government will
release such data – now pay income, Medicare and Social Security taxes amounting
to virtually the same percentage of their incomes as people making $50,000 to
¶Those earning more than $10 million a year now pay a lesser share of their
income in these taxes than those making $100,000 to $200,000.
¶The alternative minimum tax, created 36 years ago to make sure the very
richest paid taxes, takes back a growing share of the tax cuts over time from
the majority of families earning $75,000 to $1 million – thousands and even tens
of thousands of dollars annually. Far fewer of the very wealthiest will be
affected by this tax.
The analysis examined only income reported on tax returns. The Treasury
Department says that the very wealthiest find ways, legal and illegal, to
shelter a lot of income from taxes. So the gap between the very richest and
everyone else is almost certainly much larger.
The hyper-rich have emerged in the last three decades as the biggest winners
in a remarkable transformation of the American economy characterized by, among
other things, the creation of a more global marketplace, new technology and
investment spurred partly by tax cuts. The stock market soared; so did pay in
the highest ranks of business.
One way to understand the growing gap is to compare earnings increases over
time by the vast majority of taxpayers – say, everyone in the lower 90 percent –
with those at the top, say, in the uppermost 0.01 percent (now about 14,000
households, each with $5.5 million or more in income last year).
From 1950 to 1970, for example, for every additional dollar earned by the
bottom 90 percent, those in the top 0.01 percent earned an additional $162,
according to the Times analysis. From 1990 to 2002, for every extra dollar
earned by those in the bottom 90 percent, each taxpayer at the top brought in an
President Ronald Reagan signed tax bills that benefited the wealthiest
Americans and also gave tax breaks to the working poor. President Bill Clinton
raised income taxes for the wealthiest, cut taxes on investment gains, and
expanded breaks for the working poor. Mr. Bush eliminated income taxes for
families making under $40,000, but his tax cuts have also benefited the
wealthiest Americans far more than his predecessors’ did.
The Bush administration says that the tax cuts have actually made the income
tax system more progressive, shifting the burden slightly more to those with
higher incomes. Still, an Internal Revenue Service study found that the only
taxpayers whose share of taxes declined in 2001 and 2002 were those in the top
But a Treasury spokesman, Taylor Griffin, said the income tax system is more
progressive if the measurement is the share borne by the top 40 percent of
Americans rather than the top 0.1 percent.
The Times analysis also shows that over the next decade, the tax cuts Mr.
Bush wants to extend indefinitely would shift the burden further from the
richest Americans. With incomes of more than $1 million or so, they would get
the biggest share of the breaks, in total amounts and in the drop in their share
of federal taxes paid.
One reason the merely rich will fare much less well than the very richest is
the alternative minimum tax. This tax, the successor to one enacted in 1969 to
make sure the wealthiest Americans could not use legal loopholes to live
tax-free, has never been adjusted for inflation. As a result, it stings
Americans whose incomes have crept above $75,000.
The Times analysis shows that by 2010 the tax will affect more than
four-fifths of the people making $100,000 to $500,000 and will take away from
them nearly one-half to more than two-thirds of the recent tax cuts. For
example, the group making $200,000 to $500,000 a year will lose 70 percent of
their tax cut to the alternative minimum tax in 2010, an average of $9,177 for
But because of the way it is devised, the tax affects far fewer of the very
richest: about a third of the taxpayers reporting more than $1 million in
income. One big reason is that dividends and investment gains, which go mostly
to the richest, are not subject to the tax.
Another reason that the wealthiest will fare much better is that the tax cuts
over the past decade have sharply lowered rates on income from investments.
While most economists recognize that the richest are pulling away, they
disagree on what this means. Those who contend that the extraordinary
accumulation of wealth is a good thing say that while the rich are indeed
getting richer, so are most people who work hard and save. They say that the tax
cuts encourage the investment and the innovation that will make everyone better
“In this income data I see a snapshot of a very innovative society,” said Tim
Kane, an economist at the Heritage Foundation. “Lower taxes and lower marginal
tax rates are leading to more growth. There’s an explosion of wealth. We are so
wealthy in a world that is profoundly poor.”
But some of the wealthiest Americans, including Warren E. Buffett, George
Soros and Ted Turner, have warned that such a concentration of wealth can turn a
meritocracy into an aristocracy and ultimately stifle economic growth by putting
too much of the nation’s capital in the hands of inheritors rather than strivers
and innovators. Speaking of the increasing concentration of incomes, Alan
Greenspan, the Federal Reserve chairman, warned in Congressional testimony a
year ago: “For the democratic society, that is not a very desirable thing to
allow it to happen.”
Others say most Americans have no problem with this trend. The central
question is mobility, said Bruce R. Bartlett, an advocate of lower taxes who
served in the Reagan and George H. W. Bush administrations. “As long as people
think they have a chance of getting to the top, they just don’t care how rich
the rich are.”
But in fact, economic mobility – moving from one income group to another over
a lifetime – has actually stopped rising in the United States, researchers say.
Some recent studies suggest it has even declined over the last