In today’s Wall Street Journal, James Piereson says the 1% are actually hard-working people like the rest of us. They have jobs. They earn their money. Maybe they earn more money that most of us, but they do earn it; they aren’t trust fund babies or spoiled heirs.
Where does their money come from?
The top earners depend heavily on salaries. In 2010 the top 1% earned 36% of their incomes from salaries and wages (what the CBO calls labor income), 22% from businesses, farms and partnerships, and just 19% from capital gains. The majority of their income would thus be taxed today either at the corporate or the highest marginal rate rather than at the lower capital-gains rate of 23.8%.
Emanuel Saez of the University of California ( Berkeley ) has shown in a series of papers that, as he writes, “The top income earners today are not ‘rentiers’ deriving their incomes from past wealth but rather are the ‘working rich,’ highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age.”
The typical “rich” person today is someone who works for a salary and accumulates stocks and bonds through savings, retirement plans and (for business executives) stock options.
In the 1970s, actor John Houseman did a series of memorable commercials for the investment firm Smith Barney. His famous tagline is applicable to most of the 1%. How do they get their money? “They eeaarn it.”