The 1% Aren’t Who You Think They Are
A misconception of the rich or the 1% is that is they are a group of people who always has, currently, and always will own everything. But this just isn’t the case.
To be in the top 1% you need to have a net worth of a little over $10 million. That is to have $10 million in the combination of assets and cash. Some people earn hundreds of thousands or millions of dollars a year which would qualify them to be in the wealthiest group. Others instead own assets worth that much.
These assets are typically in the form of a businesses. Could be their own business that they started, one they bought, or one they invested in. In all of these cases they don’t actually have the cash in hand. Their wealth is just an estimated value of their business. When they sell portions or all of their business or asset then that’s when they get access to the cash that it is worth.
The Turnover Rate
The International Revenue Service (IRS) collected data from the top 400 individual income tax return between 1992 and 2014. Between those years 4,584 people broke the top 400. Out of the 4,584 people, 3,262 of them where only in the top 400 for one year and never made it back. That is a turnover rate of 71.2%.
Now of this group that did make it, 138 of them were able to secure a spot for over a decade. That is a total of 3% of the top 400 who consistently stay in that income bracket. They are probably your generational family wealth. The data from the IRS proves that high income earners are not a fixed group of taxpayers, but an ever changing group.
Top 400 vs Top 1%
One thing to note about the IRS study is that it is based on your income taxes. So you owing a multi-million dollar business doesn’t mean you will have an income tax. You will only be taxed when you sell a portion of your business or if your business pays you. So you could be wealthier than some of these people on the list and find yourself not on the list because it is based on taxes.
Also the study refers to the top 400 individual income earns in the country. That is the top .0001% of earners in the United States (estimated the US population to be 300mil). The 1% is the top 3 million people. Quite a large difference.
Conclusion
I believe that the turnover rate of the top 400 gives an insight to the turnover rate of the top 3 million. It might not be 71% and there is probably a greater percentage who consistently stay in the top 3 mil. But, I can confidently say the turnover rate is greater than you think. Which is the whole point. Too many believe that class mobility is very rigid, when in fact it is more mobile than ever.
Another point is that 4 million business are started every year. 30% of the fail within the first 2 years. That is 2.8 million that survive till year 3. Or 2.8 million people who have the start to a successful business and a chance to make it into the top 1%. That is each year! Now statistics say 90% of those fail in the long run but that is still 400,000 successful business.
Not to mention the numerous big businesses that go bankrupt or go under completely. Here is a list of some big name brands that filed for bankruptcy in 2020:
- J.C. Penny
- Guitar Center
- Tailored Brands
- GNC
- J. Crew
Now just because they filed for bankruptcy doesn’t mean these businesses are gone. Many filed for Chapter 11 which allows for the restructure of the business and assets and liabilities. These big name brands on the verge of collapse allows room for new businesses and thus new owners to come in.
This is the cause of the great turnover rate of the 1%. The combination of new start ups and collapsing big businesses. Plus the turnover rate of the top 400 shows how flexible and ever changing this seemingly unreachable 1%.