Trillionaires

Posted by Bob Lord 

You
have to consult Dictionary.com for the definition of trillionaire. Webster’s
doesn’t recognize it as a word yet. But it will. Because before long America
will have its first trillionaire. If you’re under 60, it likely will happen in
your lifetime.

 In
1982, Forbes magazine
published its first survey of the 400 wealthiest Americans. The wealthiest
American was Daniel Ludwig, with a reported net worth of $2 Billion. Last year,
Bill Gates topped the list at $66 Billion. That’s a 33-fold increase in America’s
largest fortune over 30 years. But the increase could have been larger. By all
appearances, Mr. Gates lost interest in accumulating wealth years ago. Had he
not made tens of billions in charitable gifts since then and had his primary
focus been wealth accumulation, he’d be over $100 Billion. And if we’re
counting total family wealth, the Walton family already has reached twelve
figures.

If
the growth rate in our largest fortunes over the past thirty years continues
unabated, we’ll see our first American trillionaire before 2040. In all
likelihood, we’re actually closer to our first trillionaire than the 2012 Forbes survey indicates. As Forbes notes, the survey
tends to undercount wealth. The $21 Trillion reportedly stashed away by the
world’s super elite in tax havens
likely is unaccounted for in the Forbes survey.

Remarkably,
as we pass the milestones, $10 Billion, $50 Billion, soon $100 Billion, no
alarm bells ring. Instead, we celebrate the expanding fortunes of the
super-rich as we do athletes breaking sports records. Reaching $1 Trillion will
be treated like hitting 73 home runs was before we knew Barry cheated to get
there. With any luck, our first Trillion Dollar fortune also will be tainted by
misdeeds of the achiever. Perhaps that will wake us from our slumber.

One
Trillion Dollars is a mind-boggling fortune. It will buy every square foot of
real estate in Manhattan
. A trillionaire could take everyone on the planet out for a steak dinner at a nice restaurant (if there were a restaurant that could hold 7 billion people). One Trillion Dollars is the wealth of a million millionaires. In the hands of
one individual or one family, One Trillion Dollars ($1,000,000,000,000) signifies a concentration of national wealth
found only in sick economies. And that’s where we’re headed.

Even
within the Forbes 400,
wealth is concentrating. In 1982, Mr. Ludwig’s wealth was 27 times that of the
400th wealthiest American. Last year, Mr. Gates’ wealth was 60 times
that of the 400th wealthiest American. This reflects the overall
trend. Whichever level of wealth you choose (top 1%, top .1%, etc.), the gap
between that level and the one immediately below it is expanding.

Is
our concentration of wealth approaching a limit? Unlikely. Carlos Slim of
Mexico has accumulated a fortune greater than any American in a country with
far less aggregate wealth. Unfortunately, there’s ample room for the
concentration of wealth in America to worsen, even room for trillionaires.

Why
the astonishing concentration of wealth? Tax policy. In the words of Bill
Clinton, it’s just arithmetic. The analysis starts with the four principal
constraints on the accumulation of wealth: living expenses, taxes on income
from labor (including employment taxes), taxes on income from capital, and inheritance
taxes. The roles those constraints play changes as you move up the wealth
scale. At the bottom, living expenses and taxes on income from labor dwarf all
other constraints on wealth accumulation. But for the super-rich, the
constraining effect of living expenses and taxes on income from labor is
negligible. Taxes on income from capital and inheritance taxes are the only
meaningful constraints on wealth accumulation by the super-rich.

Over
the past decades, policy makers have lifted the lid on wealth accumulation by
those who already have significant wealth, while holding firmly in place the lid on wealth
accumulation for those who don’t. Federal and state estate taxes have been
reduced; and the rates of tax on capital gains and dividends have been lowered. The states have engaged in a destructive race to the bottom by cutting top rates on the wealthy. Tax lawyers and accountants have developed tax saving structures at a pace with which an increasingly underfunded IRS cannot keep up. Meanwhile, for ordinary Americans, living expenses have risen, as have taxes on income from labor. (The
increase in employment taxes has more than offset the decrease in the income
tax on wages.)

The
unavoidable result of our tax policy is that wealth at the top is growing at a faster
rate than aggregate wealth.  That’s where the arithmetic comes in to play.
It’s mathematically certain that if the wealth of one group grows at a faster
rate than a country’s aggregate wealth, that group’s share of the aggregate
wealth must increase over time. And there’s no limit to the level of
concentration. So, until inheritance taxes and the taxes on income from capital
are increased to the point that the wealth of those at the top grows no faster
than our aggregate wealth, America’s wealth will continue to concentrate at the
top.

We
often hear deficit scolds warn us we’re becoming Greece. We’re not. We control
our own currency; our debt is denominated in that currency; and most of our
debt is held internally.

But
unless our tax policy changes, we are mathematically certain to become Mexico.
The only questions are who will be our Carlos Slim and how kindly will our
trillionaires treat us.

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