Thomas Piketty vs. the Forbes 400

August 4, 2014

Thomas Piketty vs. the Forbes 400

Piketty’s Claims of Dynastic Wealth Lack Sufficient Evidence

Washington, DC (Aug 4, 2014)—In his book, Capital in the 21st Century, Thomas Piketty argues that the wealthiest Americans are essentially benefactors of dynastic wealth, and uses the Forbes 400 ranking as evidence that the wealthy enjoy a higher rate of return than the rest of society. However, his evidence doesn’t support his claims. Wealth is much more fleeting than Piketty suggests, and is characterized more by entrepreneurship than by inheritance, according to a new historical analysis of the Forbes 400 list by the nonpartisan Tax Foundation.

According to the report, most people on today’s Forbes 400 were not there a generation ago, nor were their forebears. 327 people have dropped off the list since 1987. Of the remaining 73 people, those with the highest annual rates of return are generally self-made entrepreneurs and investors—not heirs—with an average annual real rate of return of 5.6 percent over the last 26 years.

Other important takeaways include:

  • The rate of return for the Forbes 400 as a whole, 2.4 percent, is roughly equal to Piketty’s estimated returns for the entire population.
  • Wealth today is largely generated by entrepreneurial skill, with the number of entrepreneurs on the Forbes 400 list rising from 40 percent in 1982 to 69 percent in 2011.
  • The role of inheritance has diminished over the last generation; the share of the Forbes 400 that grew up wealthy has fallen from 60 percent in 1982 to 32 percent today.
  • As with individuals, the wealth of corporations has been highly dynamic over the last 30 years; turnover in the Dow Jones Industrial Average has increased in recent decades, with only one corporation (General Electric) remaining on the Dow Jones for more than 100 years.

“Piketty deserves credit for demonstrating that top incomes and wealth are higher than they were a generation ago, but his explanations and interpretations of that trend are without basis,” said Tax Foundation Chief Economist William McBride, PhD. “Most economists attribute higher incomes to the relatively benign process of globalization making innovation and top talent more valuable, such as the worldwide adoption of Microsoft products over the last generation, for example. Piketty, instead, prefers a darker theory of ‘supermanagers,’ who then enjoy high rates of return on their wealth, which is then bequeathed to heirs who also enjoy high rates of return. In these beliefs, Piketty is virtually alone in the economics profession and at odds with historical facts.”

Piketty has offered several tax proposals as solutions to income inequality as he understands it. Ironically, these proposals would exacerbate the very problems he has identified. His proposed policies are aimed at the wealthy, who are the ones most able to avoid these taxes. Ultimately, the taxes are largely passed on to workers in the form of layoffs and lower wages and to consumers in the form of lower quality products at higher prices.

Full Report: Thomas Piketty’s False Depiction of Wealth in America

Media Contact:
Richard Borean
Manager of Communications
Tax Foundation
202-464-5120
borean@taxfoundation.org

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.

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The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.