[leot]

There are ~400 Americans with > $1 billion in wealth, and 200 with >$2 billion. $77 million in return on $1 billion is 7.7%. On $2 billion it's a mere 3.85%.

Combined with the fact that only 27% appear more than once in the IRS's list, and the fact that people tend to stay billionaires for a long time, this suggests that once people get to this level of wealth they turn down the aggressiveness of their investing and become risk averse.

For if every billionaire earned a healthy return on their capital, the top 400 earners would stay roughly the same from year to year, and correspond closely to America's top wealthiest.

Furthermore, America would be generating a lot more wealth than it currently does.

[nonce42]

The important thing to remember is that AGI (which the article discusses) and how much money you "make" are not very correlated once you make above, say, 200K a year. A key reason is unrealized capital gains - I guarantee you that if a billionaire makes $77 million, most of that isn't going to appear as AGI. In a sense, realizing capital gains means something went wrong, not to mention income which is very wrong. Other factors that keep money out of AGI include tax-exempt bonds, business expenses, and capital loss harvesting. (And these are just some of the legal ways.)

Please, when you read an article discussing AGI, keep in mind that it is a semi-random number. Unfortunately since it's the number available, it's what gets used.

[leot]

Thank you. Good point.

This also serves to demonstrate the artificiality and awkwardness of taxing capital gains v.s. simply taxing wealth directly.

[DanielBMarkham]

You're mixing wealth and income.

[jaxn]

No, he is saying that $1B in wealth (about 400 people) generates $77m (threshold to make list of highest earners) in income assuming a 7.7% rate of return (which seems unrealistically high to me).

[leot]

Actually, I'm saying that if the 200+ Americans with >$2 billion in wealth consistently generated more than 4% return on capital, then at least 50% of the top 400 earners should stay relatively the same year after year (since those with >$2 billion usually stay billionaires). The fact that only 27% have appeared more than once suggests that those with more than $2 billion in net worth are reporting returns less than 4%.

[jaxn]

Appreciating assets don't count as income. They very well may be minimizing income while still maintaining growth. When they sell those assets, they make the list.

[ef4]

But when we're talking about capital gains income, we would expect the two to be correlated.