The wealthiest dozen Americans own more than the bottom half

A report out today provides a powerful image that will help people understand how extreme concentration of wealth has become in America — an issue at the core of our economic, political and social woes over the past 35 years.

“America’s 20 wealthiest people — a group that could fit comfortably in one single Gulfstream G650 luxury jet — now own more wealth than the bottom half” of Americans, according to the report, by Chuck Collins and Josh Hoxie, both veteran analysts of inequality in America.

But there’s a big problem with that memorable image: It seriously understates just how much wealth these 20 people have.

Probably just 12 or 15 of those at the top own as much as America’s worst-off 160 million people. That’s about $732 billion on each side of that equation. For the top 20, it averages $36 billion each; for the bottom half, $4,575 each. 

The intense concentration of wealth matters because it makes the economy less efficient, discouraging investments that create jobs while giving a relative handful of superrich Americans vast sway over the agendas that politicians pursue.

Just 158 families, along with companies they own or control, provided nearly half the contributions to the presidential candidates in both parties, though giving was heavily skewed to Republicans.

The result is policies that take from the many and redistribute to the already rich few through stealth techniques that rarely make the news but can be found in the public record. Among these policies are a failure to enforce the laws of business competition, severe restrictions on unions and subsidies galore for big companies.

Five years ago, the 400 households reporting the largest incomes on their tax returns captured an astonishing 6 percent of all the increased income in America, as I revealed a year ago. Such massive inequality reflects not market economics but political influence that tilts the economic playing field.

And because of their political influence, those at the very top get tax favors, especially the deferral of taxes into the distant future, which transforms the burden of taxes into a bonanza of increased profits.

If you wonder why Washington doesn’t seem to fix problems that affect most Americans, this is the answer: Politicians take care of the hands that feed them, the donor class.

In an era when so many voters are easily swayed with angry rhetoric, made-up facts and slick marketing of policies that sound great but actually hurt the vast majority, most politicians pay no price for catering to the richest of the rich at the expense of the many.

Wealth at the top is much more concentrated than Collins and Hoxie report, because we have only weak and incomplete measures of wealth. And we let people choose how to value their wealth.

Is an asset worth what was paid for it (known as basis) or its value after depreciation or its fair market value today? A smart owner picks basis when dealing with tax appraisers but market value when seeking loans. We let people simultaneously pose as poorer to the taxman and wealthier to their bankers.

The Collins and Hoxie analysis of top wealth was based on the latest Forbes 400, a promotional vehicle for America’s leading wealth-porn magazine. I devour every issue — and not just to feast my eyes on its charticles.

But the Forbes list is based mostly on disclosures about publicly traded stock, largely ignoring investments in other stocks and bonds as well as many other side businesses owned by those at the top.

Over the years, I have interviewed more than a dozen people whose wealth should put them on the Forbes 400 list, on the basis of public records on file with the Securities and Exchange Commission and at county courthouses, where land title, divorce and other records are often filed. None of these people have ever been mentioned in Forbes, however, in any article.

The list would be different if Forbes had a way to get at more privately held companies, analyzed more real estate records or could get a peek at the brokerage accounts of the superwealthy (or in some cases the banks they own).

Counted or not by Forbes, the billionaires gather up mountains of dividends, royalties, interest and capital gains each year, making their wealth snowball apart from the companies they are best known for leading.

Forbes 400 leaders such as Bill Gates (No. 1) and Larry Ellison (No. 3) have sold huge amounts of stock over the years and used it to buy other assets not counted in the Forbes listings.

Gates’ second fortune is owned through his Cascade Investments LLC, which has large stakes in a more than a dozen big companies, including a major military boat builder, the Four Seasons luxury hotel chain and Republic Industries, a trash-hauling company. Forbes counts Gates’ second fortune, but those of many others are not so obvious.

Consider Warren Buffett, perennial No. 2 on the Forbes list of richest Americans. Forbes’ latest list shows his wealth as the value of his stake in Berkshire Hathaway, the Omaha, Nebraska, holding company that pays him a $100,000 annual salary.

But when Buffett disclosed data from his 2010 income tax return, it showed $62.8 million of income. More than $40 million of it was long-term capital gains and dividends, yet Buffett sold no Berkshire Hathaway shares, and the company pays no dividends. That tells us he has a second large fortune apart from Berkshire Hathaway.

He deducted about $16 million in investment interest, suggesting leveraged assets of perhaps $800 million, assuming he can borrow at 2 percent.

And he benefits from a host of laws that let him borrow from the government at zero interest, charge monopoly prices and even turn taxes embedded in the monthly bills of his electric company customers into cash that never gets to government, juicing his fortune at your expense.

The truth is that Buffett’s wealth is much more than the value of his Berkshire Hathaway stock. And government policy helps make it grow and grow.

So think about that image — a top-of-the-line Gulfstream G650 jet and 160 million Americans, each with the same net worth. Now imagine a much smaller jet, with 12 or so oligarchs, and ask yourself just why you are paying taxes to enhance their fortunes instead of your nest egg.