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Who are The Top 1%?

December 23, 2011

Active in the political debate today is whether or not to increase taxes on the Top 1%. Forgetting Party affiliations, let’s examine some data with detachment in hopes of answering the question “who are those Top 1%’s?”

In the subtle manner they are described by the media, the Top 1%’s are corporate bosses with millions in the bank, who are also capable of collectively providing enough jobs to rid the country of unemployment.

There are 6,500 publicly traded companies in the U.S. If all the CEO’s were millionaires and let’s assume they are, this is 0.0020% of the population. Not enough to fill the Top 1% label. So let’s expand the field. Let’s review the numbers on all U.S. businesses and not just the publicly traded ones.

According to the U.S. Census Bureau (http://www.census.gov/econ/smallbus.html) there are a total of 7.6 million employer establishments in the U.S. An establishment is defined as; A single physical location where business is conducted or where services or industrial operations are performed. Employer label refers to establishments with employees on the payroll.

Now we need to subtract the establishments with 1 to 4 employees. There are exceptions, but for the most part these are not businesses where millions are being generated. This removes 3.6 million establishments.

And to be fair, not all of the remaining businesses are generating enough wealth to be considered anywhere near the Top 1% status. Assume a distribution of 20% of the remaining firms in the Success category, and 20% in the Failure category (there is a high turnover among establishments), with the remaining 60% teetering in the middle. Now, let’s remove the Bottom 20%, another 1.5 million.

Guess what happens when you do this? You are left with 1.0%. Here is the math:

U.S. Citizens (http://www.census.gov/main/www/popclock.html)    312,825,281

Establishments with employees                                                           7,601,169

Establishments with 1 to 4 employees                                  minus       3,624,614

Bottom 20% of Establishments with 1 to 4 Employees           minus         795,311

Remainder                                                                                         3,181,244

Percentage of Citizens        (3,181,244/312,825,281)                                  1.0%

Intuitively, this makes sense. Because if we looked at the wealthiest 1% in the U.S. in terms of income and wealth, they would have similar (not exact) proportions of demographics of the larger population. Specifically, they would include the retired, those under 18, movie stars, sports athletes, politicians, lawyers, doctors, brokers, etc etc. These are not the 1% who can provide jobs. Certainly not enough to dent the current unemployment.

Hypothesis: The Top 1% are those who are currently running a business within the U.S. today, and are targeted with higher personal taxes forcing them to reinvest wealth into a possibly lower taxed entity and hopefully increasing employment.

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