# Where do the rich get their money?

Well, from us, of course. All their dollars represent, is claims on our labor.

Still, it’s interesting to ask what forms those claims take. Especially since there is a widely-held belief that today, unlike in the bad old days, the incomes of even the super rich are, at least on paper, mainly compensation for their work — that they’re a return on “human capital” rather than the old-fashioned kind. Is there anything to that?

Here’s what the IRS Statistics of Income says:

Share of total income by source, filers reporting \$1 million or more

 Year Wages and salaries Interest, dividends, rent Capital gains Business income 1995 31.0% 17.2% 28.4% 23.1% 2000 33.2% 10.3% 42.5% 13.1% 2005 26.9% 15.7% 38.1% 22.3% 2008 30.7% 19.8% 30.4% 23.2%

Share of total income by source, filers reporting \$10 million or more

 Year Wages and salaries Interest, dividends, rent Capital gains Business income 2000 25.0% 8.6% 58.2% 7.4% 2005 17.5% 17.4% 50.8% 17.8% 2008 18.8% 22.1% 45.4% 18.7%

Share of total income by source, all filers

 Year Wages and salaries Interest, dividends, rent Capital gains Business income 1995 76.4% 7.3% 4.0% 6.9% 2000 70.0% 6.5% 9.7% 6.6% 2005 69.5% 6.8% 8.9% 8.9% 2008 72.0% 8.1% 5.6% 7.5%

Source: IRS Statistics of income, author’s calculations
Notes: Income above \$1 million not broken out before 2000. All nonwage income is net of losses. Business income includes business/professional income, S corporation and partnership income, and farm income.

So no, it’s no more true than it ever was that the rich earn their money, in even the most limited formal sense.

EDIT: In retrospect, I guess it would have been better to do the tables by year, with the rows by income class. Oh well.

## One thought on “Where do the rich get their money?”

1. Myles SG says:

You'll be better off making a comparison of figures from 2000, 1950, 1930, and 1900.

The social composition of the advanced world hasn't changed very much since the fall of the Berlin Wall.

In any case, the figures are deceptive. Does the manager of Sun or Microsoft or Apple make their income by capital gains? But yes of course. But does it mean that they are not really being compensated for their skills? Not unless if you count stock options and the like in terms of executive compensation non-human-capital-based income.

I am inclined to believe that some degree of inequality is unwarranted and there is maldistribution of wealth. But at the same time the appropriate balance is not either at the Continental Europe standard or to the left of it. Professionals are clearly undercompensated and their incomes artificially depressed in social democracies (cf. medical salaries in France), if wages are to in any way reflect productivity. And if wages reflect productivity, then logically the higher the wages, the more in savings, and the more in capital gains.