Junk Stats: Top 1% of have 58% of wealth

Another entry in our Junk Stats series. You may have heard the sound bite: "Top 1% of Americans have 58% of the corporate wealth, up from 39% in 1991.

In 15 years these people have gathered another 20% of the wealth of this huge country? Let's look a little closer.

NY Times Jan 28, 2006 -"New U.S. government figures indicate that the concentration of corporate wealth among the highest-income Americans grew significantly in 2003, as a trend that began in 1991 accelerated in the first year that President Bush and Congress cut taxes on capital.    

"In 2003, the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data. The top group's share of corporate wealth has grown by half since 1991, when it was 38.7 percent. In 2003, incomes in the top 1 percent of households ranged from $237,000 to several billion dollars.  

Farther down in the article, we see the likely junk stats culprit: changing methodology. In this case, it's not the methodology itself, but the tax policy upon which that methodology is based.  

“The analysis did not measure wealth directly. It looked at taxes on capital gains, dividends, interest and rents. Income from securities owned by retirement plans and endowments was excluded, as were gains from noncorporate assets, such as personal residences. This technique for measuring wealth has long been used in standard economic studies, though critics have challenged that tradition. Among them is Stephen Entin, president of the Institute for Research on the Economics of Taxation.... Lower tax rates on long-term capital gains, Entin said, may have prompted wealthy investors to sell profitable investments. That would show up in tax data as increased wealth that year, even though the increase may have built up over decades. Long-term capital gains were taxed at 28% until 1997 and at 20% until 2003, when rates were cut to 15%. The top rate on dividends was cut to 15% from 35% in the same year.”  

The underlying trend toward wealth concentration is probably true. But the fact that we believe the underlying trend is true is the reason why we are willing to believe extreme statistics like these.  If we saw similar statistics that disagreed with our beliefs, we would be more skeptical.  

I'm not picking on the NY Times. To their credit, the article contained ALL of the facts above. But then the Times has room to print the long version. Other media outlets either don't have the space, or don't want to bother with all that boring detail when there's better ratings in the sound bite.