I wrote in my previous blog post that a few important things about inequality are constantly missed.
The first, as I pointed out, is that the figures on it have been distorted by the super-wealth of a tiny number of people. But the second is that being a high-income earner is usually a transient state of affairs so the 0.1%, the 1% and the 10% are constantly changing. This is the case among the super-rich.
As Derek Thompson notes in The Atlantic, "there is considerable churn at the tippy top." The US IRS keeps an annual list of the 400 "richest tax returns in the country." Between 1992 and 2008, 3,672 different taxpayers appeared on the 'Fortunate 400' list. But just four households appeared on the list in all 17 years.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
And it isn't just the case among the super-rich. It's the case among the rest of us too. Let's look at the UK. Around five million people in the UK pay tax at a marginal rate of 40%. Given that about 30 million people pay income tax, that sounds like a smallish percentage of the whole: 40% taxpayers are the 16%.
But here's the thing just as 3,000 households have moved through the Fortunate 400 in the last decade, so people move in and out of the 40% over a working life.
Not many people are in the group in their first job. Many more move into it in their late 30s and 40s as they progress at work. Then they fall out of it as they retire (people in their 20s see their earnings rise nearly 100% by the time they hit 40 and then fall back 25% as they head for retirement).
I can't find numbers on the actual percentage of workers who pay 40% tax at some point in life, but I'd put it a lot closer to 50% than 20% (any readers got these numbers or know where they might be found?).
Then it is worth remembering that people build wealth as they age and can, therefore, hit retirement with a high level of wealth, but low level of income in the 1% for wealth, but well out of it for income.
A study from Skipton Building Society made this clear recently with the conclusion that wealth and income inequality is almost entirely age-based: "people entering or starting retirement are in the best financial position of their lives," even though their actual income is on average some £7,000 below that of people in the 35 44 (peak earning) age bracket.
So, the high income 1% might include a few young bankers with £100,000 worth of debt from their MBA (negative wealth), but not the 65-year-olds with two houses and a £1.5m pension they have on flexible drawdown.
This might all sound obvious, but given that the inequality discussion is going to run and run (quite rightly), it is worth us all getting in to it in the full knowledge that there is no such thing as a static 1%, 10% or even 16%. Everyone's constantly on the wealth and income move.
Some good news. While income and wealth inequality could be said to be going in the wrong direction, social mobility in Britain has been getting better.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
