Top Earners, Biggest Losers

August 21, 2009

David Leonhardt and Geraldine Fabrikant have a piece in the New York Times this morning documenting the “hard times” that have befallen the super-rich.

Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent, according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends, which is concentrated among the affluent, has fallen more than 20 percent since last summer, the biggest such decline since the government began keeping records in 1959.

Stock dividends are one of the major sources of income not only for the super rich but for many less wealthy individuals. This means that higher-income individuals have a more volatile income stream.

In an attempt to close budget gaps some states have created new high-rate brackets for top income earners. States need to understand that these high-income brackets will be an unstable revenue source. These states should not expect the new reforms to be practical budget fixes.

For three such cases see Oregon, Hawaii, and New Jersey.

Leonhardt and Fabrikant also mention the incentives created by high top marginal tax rates:

Mr. Piketty, one of the economists who analyzed the I.R.S. data, argues that these high rates did not affect merely post-tax income. They also helped hold down the pretax incomes of the wealthy, he says, by giving them less incentive to make many millions of dollars.

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