Derek Thompson — The Rise (and Rise and Rise) of the 0.01 Percent in America

How'd they all get so rich? It wasn't the way the rest of us get rich. It wasn't their wages. It was something else.

The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. At the very tippy-top of the economy, the 400 richest tax returns analyzed by the IRS take home about 50 percent of their income from capital gains.

Practically all the growth in average income at the top comes from stocks. Between 1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.

Atlantic Business 

The Rise (and Rise and Rise) of the 0.01 Percent in America

Derek Thompson

Top management is paid in stock deals instead of income for the obvious reason that capital gains are taxed way less then ordinary income. The reason given, however, is that this creates the incentive to "maximize shareholder value." As result the incentive is to manage toward stock price, largely based on quarterly earning relative to analysts estimates rather than longer term company fundamentals, when top management will likely be gone. Is this a perverse incentive? It certainly seems to be a case of economic rent.