What is the percentage of the world’s wealth held by the top 1% or top 10%?
According to the World Inequality Report of 2022, the wealthiest 1% of the world’s population owned about 45% of global wealth and the top 10% owned about 76% of global wealth. This prompted many economists to suggest that this inequity could be addressed by increasing tax on the wealthy. This recommendation is, of course a very popular solution because most people see a redistribution of wealth as a personal benefit to them. However, before we jump at simplistic solutions, we have to examine the roots of these differences in wealth.
In 1912, Italian statistician and sociologist Corrado Gini published a paper in which he attempted to quantify income inequality using an index subsequently named the Gini coefficient. He assigned a value of 0 to the Gini coefficient of a perfectly egalitarian society in which everyone has the same income. At the other extreme, a Gini coefficient of 1 was assigned to a society with maximal inequity in which one individual earns all the income and everyone else earns nothing. To measure the dispersion of incomes from a population of n people, he proceeded as follows:
• Sum the absolute difference in income between each pair of people in the population.
• Divide this sum by 2n times the total income to obtain a fraction between 0 and 1. That fraction, called the Gini coefficient is close to 0 when there is little income inequality and close to 1 when there is significant inequality.
In 2015, the OECD listed Gini coefficients for its member nations. Most of the nations had a Gini coefficient between 0.4 and 0.5, before taxes and transfer payments. Progressive tax policies that draw higher taxes from those with larger incomes, generally reduced these coefficients to the range between 0.3 and 0.4 after all the taxes and transfer payments were made. Among these countries, South Korea had the smallest Gini coefficient at 0.344 and Italy the highest at 0.534. The United States came in at 0.486 and Canada at 0.441, falling to 0.378 and 0.324 respectively after taxes and transfers. The highest Gini coefficients occur in the nations of Africa and South America where there is extreme poverty. At the other extreme, the Scandinavian countries such as Norway, Sweden and Denmark have Gini coefficients around 0.42 before taxes, and strong socialist policies further reduce this to about 0.25 after taxes and transfers, yielding the smallest inequities.
The suggested causes of the rapid growth in the incomes of the top percentiles, are presented in table 30–2 below from Intelligence: Where we Were, Where we Are & Where we’re Going.
This table reveals that the causes of the unequal distribution of wealth in a country and between countries are complex and merely adding more tax to those who build wealth may be counterproductive. Those who feel that the wealthy are not paying their “fair share” may not realize that in the United States, for example, the top 1% of income earners paid 40.4% of all the federal taxes in 2022 and the top 10% paid 72.0%. Furthermore, the top 1% of earners, who had an adjusted gross income (AGI) of $663,164 or more, accounted for more income taxes paid than the bottom 90% combined. The bottom 50% of Americans had incomes of $50,399 and combined, 3% of the total federal taxes collected.
When Senator Elizabeth Warren tweeted, “Let’s change the rigged tax code so the Person of the Year will actually pay taxes and stop freeloading off everyone else.” Musk cogently responded, “If you opened your eyes for 2 seconds, you would realize I will pay more taxes than any American in history this year. Don’t spend it all at once …oh wait, you did already.” (Musk paid more than $11 billion in federal taxes in 2021.)
