The Wall Street Journal had a curious editorial yesterday that made an outlier claim: The number of millionaires in the U.S. is actually decreasing, and so is their total wealth.
Here's how the Journal backed up that claim, in an editorial titled, “Millionaires Go Missing” (emphasis added):
Speaking of “millionaires and billionaires” (see above), the real tax news is that there are fewer of both these days. This month the IRS released more detailed tax data for 2009, and the nearby table records the decline of the taxpaying rich.
In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more and paid $309 billion in taxes. In 2009, there were only 237,000 such filers, a decline of 39%. Almost four of 10 millionaires vanished in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42%.
The Journal also claimed that “millionaires,” defined here as those having “adjusted gross income of $1 million or more,” are making less money altogether, as a percentage of the total income in the country:
For the past three decades, the political left has obsessed about income inequality. As the economy experienced one of the largest and lengthiest economic booms in history from 1982-2007, the left moaned that the gains went to yacht club members.
Well, if equality of income is the priority, liberals should be thrilled with the last four years. The recession and weak recovery have been income levelers. Those who make more than $200,000 captured one-quarter of the $7.6 trillion in total income in 2009. In 2007 the over-$200,000 crowd had one-third of reported U.S. taxable income. Those with incomes above $1 million earned 9.5% of total income in 2009, down from 16.1% in 2007.
Fox, continuing its ongoing at-all-cost defense of America's wealthiest, picked up the claim from its fellow News Corp. entity and ran with it on Fox & Friends this morning. Fox Business hosts Eric Bolling and Stuart Varney hyped the claim unquestioningly:
BOLLING (guest co-host): Now, Mr. Obama has been very clear. He says it's the millionaires and the billionaires that we need to tax, and we need to look at to raise revenue. What's going on with -- with the millionaires in America?
VARNEY: Well, The Wall Street Journal has been crunching some numbers, and they've found that the number of people earning a million dollars a year or more was drastically cut between 2007 and 2009. The numbers -- look, you can see it on the screen -- dropped by 39 percent. Now, that's exactly opposite of what we all thought. We thought the rich were getting richer, and they were taking the lion's share of all the money. Not so. The number of millionaires, of people making the million dollars a year, down very, very sharply.
Unmentioned by either the Journal or Fox: This statistic is virtually the only one suggesting that the number of millionaires and their wealth has decreased at all in the past four years. There are many reports to the contrary -- including some from the Journal itself.
Here's an excerpt from a post on the Journal blog The Wealth Report, titled, “U.S. Has Record Number of Millionaires,” from June of this year:
If further proof were needed of the two-speed recovery -- the rich and the rest -- now comes news that America has a record number of millionaires.
According to the annual World Wealth Report from Merill Lynch and Capgemini, the U.S. had 3.1 million millionaires in 2010, up from 2.86 million in 2009. The latest figure tops the pre-crisis peak of three million.
Merrill and Capgemini define millionaires as individuals with $1 million or more in investible assets, not including primary home, collectibles, consumables and consumer durables.
The post also noted, contrary to claims made by the Journal editorial and Varney, that "[t]he wealth held by these millionaires also hit a record. North American millionaires had a combined wealth of $11.6 trillion, up from $10.7 trillion in 2009."
A May Forbes article actually pegged the estimated number of millionaires even higher, citing a Boston Consulting Group report that found the U.S. has “an estimated 5.22 million” “millionaire households,” which was an increase from “4.75 million last year.”
But, to be fair, both of those estimates are for the number of millionaires in 2010. The Journal referenced the number of millionaires in 2009. That's an odd choice, since the editorial was published yesterday, but OK -- are there other reports on the number of millionaires in 2009?
Yes -- here's The Huffington Post in March 2010, citing a Spectrem Group report, in an article titled, “Number Of U.S. Millionaires Soared in 2009: Spectrem Group” :
It was a good year to be rich. Or ultra-rich, for that matter.
The number of U.S. households with a net worth of $1 million or more -- excluding wealth derived from a primary residence -- grew 16 percent last year, according to a new report by the Spectrem Group, a Chicago-based consulting firm. After a 27 percent decline in the number of millionaire households in 2008, the ranks of U.S. millionaires swelled to 7.8 million last year.
Weird. What's going on here?
The answer lies in how the various calculations are being made. The above reports calculated the number of millionaires based on “net worth” or “investible assets.” The Journal editorial used “adjusted gross income” (AGI).
As Christian Dorsey, director of External and Government Affairs at the Economic Policy Institute, explained to Media Matters in an email, "[i]nvestible assets remains ... the real standard to determine wealth," not the number of income filers in a tax bracket (emphasis original):
[T]he WSJ is narrowly, technically correct, but misleading in that their threshold for millionaire status is inconsistent with the mainstream. Incomes reported to the IRS by really high income earners vary greatly over time, and it's no surprise that during a full recession year, we would see a sharp drop.
...[I]t's easy to see why reported AGI's of 1 million plus dropped. There were no capital gains to be had (generally) and high income filers realized huge losses. It should also be noted that the number of filers dropped in every other income category as well.
Investible assets remains to the real standard to determine wealth in my opinion. The volatility of incomes reported at the high end is a well-known and researched fact.
In an email discussion, the Brookings Tax Policy Center agreed, saying, “Being a 'millionaire' is traditionally measured in net worth, not adjusted growth income. Looking only at adjusted growth income ... is a narrower measure of worth.” The email continued, “It is most likely that the decreased number of people reporting income of more than $1M in 2009 reflects decreased capital gains from the decline in the stock market. However, stock market wealth is accumulated in the long run, and so reporting year-by-year changes can be a misleading way to evaluate the distribution of wealth.”
The Tax Policy Center also pointed to this Congressional Budget Office chart showing after-tax shares of income by income quintile since 1979 to point out that “income trends ... over the past 30 years” have favored the wealthiest. Indeed, the top 1 percent of income earners have seen their incomes rise from a 7.5 percent share of all national income in 1979 to 16.3 percent in 2007. That means the incomes of this group increased a staggering 256 percent, according to this chart from the Center for Economic and Policy Research:
In the meantime, over the same period, incomes of the lowest two quintiles increased only 11 and 18 percent.
Incomes dropped for everyone during the recent recession. But it seems pretty clear that the millionaires that the Journal and Fox are trying to whip up sympathy for were much better equipped to weather those tough economic times.