If current trends continue, an individual trillion-dollar fortune in the United States will be surfacing within not much more than a generation.
By Bob Lord
You have to consult Dictionary.com to get a definition for “trillionaire.” Webster’s doesn’t yet recognize trillionaire as a word. But it will. Because before long America will have its first trillionaire. If you’re under 60, that first trillionaire will likely appear in your lifetime.
In 1982, Forbes magazine published its first survey of the 400 wealthiest Americans. The wealthiest American at that time: Daniel Ludwig, held a reported net worth of $2 billion. Last year, Bill Gates topped the Forbes 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, 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 remained personal wealth accumulation, the Gates fortune would now total over $100 billion. And if we’re counting total family wealth, we’ve already hit the $100-billion level. The Walton heirs to the Wal-Mart fortune have a combined 12-figure net worth.
If the growth rate in America’ largest fortunes over the past 30 years continues unabated, we’ll see our first American trillionaire before 2040. In all likelihood, we’ve actually moved closer to our first trillionaire than the 2012 Forbes survey suggests. As Forbes notes, the survey tends to undercount wealth. Last summer, a Tax Justice Network analysis put the unreported global wealth stashed in offshore tax havens at $21 trillion. Forbes isn’t catching all those trillions.
A fortune worth $1 trillion would today be enough to 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 we had a restaurant that could hold 7 billion people. A fortune worth $1 trillion would equal the net worth of a million millionaires.
In the hands of one individual or one family, $1 trillion — $1,000,000,000,000 – would signify a concentration of national wealth that only a truly sick economy could boast. And that’s where we’re headed.
Even within the Forbes 400, wealth is concentrating. In 1982, Daniel Ludwig’s wealth totaled 27 times the wealth of the 400th wealthiest American. Last year, the Bill Gates fortune equaled 60 times the fortune of the 400th wealthiest American. Whichever level of wealth you choose — top 1 percent, top 0.1 percent, top 0.01 percent – we see the same dynamic: The gap between each wealth level and the level immediately below is expanding.
Is our concentration of wealth approaching some sort of natural limit? Unlikely. Carlos Slim of Mexico has accumulated a fortune greater than any American billionaire in a country with far less aggregate wealth than the United States. Unfortunately, America’s intense concentration of wealth has room to worsen, even room for trillionaires.
Why are we seeing this astonishing concentration of wealth? Tax policy. In the words of Bill Clinton, it’s just arithmetic.
All individuals face four principal constraints on the wealth they can accumulate: annual living expenses, the taxes they have to pay on their income from labor, the taxes they have to pay on their income from capital, and inheritance taxes. The roles those constraints play change as an individual moves up the wealth scale.
At the bottom, living expenses and taxes on income from labor essentially prevent any significant accumulation of wealth. But for the super rich, living expenses and taxes on income from labor have a negligible constraining effect, because these rich are pulling in income, mostly from capital, that dwarfs their living expenses.
Taxes on income from capital and inheritance taxes, in the end, stand as the only meaningful constraints on wealth accumulation by the super rich. But these taxes have decreased over recent decades. Policy makers have, in effect, 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.
Things seem to be getting even worse. States are engaging in a destructive “race to the bottom,” competing to see who can give the wealthy the best deal at tax time. At the federal level, an underfunded IRS cannot keep up with tax lawyers and accountants developing ever more sophisticated tax-saving schemes.
Meanwhile, for ordinary Americans, living expenses have risen, as have taxes on income from labor, since the increase in Social Security and Medicare payroll taxes has more than offset the decrease in the federal income tax on wages.
The unavoidable result: Wealth at the top is growing at a faster rate than aggregate wealth. That’s where the arithmetic comes in to play. If the wealth of one group within a nation grows at a faster rate than the nation’s aggregate wealth, that group’s share of the aggregate wealth must increase over time. That’s a mathematical certainty. And the level of subsequent wealth concentration has no limit.
So until inheritance taxes and taxes on income from capital rise high enough to keep wealth at the top growing no faster than aggregate national wealth, America’s wealth will continue to concentrate in the pockets of America’s most affluent.
Unless basic U.S. tax policy changes, the United States will be mathematically certain to reach Mexican-like levels of wealth concentration. The only questions: Who will be our Carlos Slim and how kindly will our trillionaires treat us.
Bob Lord, a veteran tax lawyer and former congressional candidate, practices and blogs in Phoenix, Arizona.