How the Rich Got Rich

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John D. Rockefeller, America’s first billionaire, said, “If your only goal is to become rich, you’ll never achieve it.”

Easy for him to say, but his point is well taken: If the only thing you care about is making money, no matter how much money you make it will never be enough.

Still, even though we all define and calculate success differently, most of us would like wealth to factor into our equations.

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To find out how, check out the 400 Individual Tax Returns Reporting the Largest Adjusted Gross Incomes, an annual report issued by the IRS. Granted the IRS Statistics of Income division must be where fun goes to die, as my CPA friend Bill Zumwalt (who forwarded me the report) says. But if you want to get rich, there’s interesting data buried in all the charts and tables.

(The latest report is for 2009, which to you and me was a long time ago but to the government is really, really up to date.)

In 2009 it took $77.4 million in adjusted gross income to make the top 400. That might sound like a lot, but it’s down from $109.7 million in 2008 and significantly down from a record high of $138.8 million in 2007.

A mere $77.4 million only got you in, though; the average earnings were $202.4 million, a lot of money but well down from the $334.8 million average in 2007.

Where it gets interesting is how the top 400 made their money:

  • Wages and salaries:  8.6%
  • Interest: 6.6%
  • Dividends: 13%
  • Partnerships and corporations:  19.9%
  • Capital gains: 45.8%

The top 400 averaged $92.6 million in capital gains income–16% of the total capital gains reported by all taxpayers. (Do the math and the whole 1% thing seems like an overestimate.)

Obvious conclusions:

  • Working for a salary won’t make you rich.
  • Neither will making only safe “income” investments.
  • Neither will investing only in large companies.
  • Owning a business or businesses, whether in part or partnership, could not only build a solid wealth foundation but could someday…
  • Generate a huge financial windfall.

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The data clearly supports the last point. A total of over 3,800 taxpayers have made the top 400 since 1992, but only 27% appear more than once, and only 2% appear 10 or more times.

Clearly, getting rich–in monetary terms–is the result of investing in yourself and others, taking risks, doing a lot of small things right… and then doing one big thing really, really right.

And hopefully achieving other goals along the way–because then, even if you don’t get rich, you’ll still be wealthy.

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53 comments
Talendria
Talendria

Saving money is a lot like losing weight.  Everybody knows how to do it, but very few people have the discipline.  While it's tempting to conclude that people born into wealth have an unfair advantage over the rest of us, just like people who have "good genes" have better odds of staying slim, we've all heard the stories of elderly janitors and librarians who bequeathed vast sums by living frugally on their small salaries.  It's possible; it's just not easy.

LauraLoraine
LauraLoraine

What about inheritance? This article is immediately suspect to me for failing to mention that point. 

manoj apte
manoj apte

Today we see that our life is going very fast, so tenssions n stress are created. So

We have must do exercise n meditation for good health n positive thinking.

So be happy n positive. Than we find that the stress are gone away...

yongdao
yongdao

where is the inequality? Here! 

Chinga_Tu_Madre
Chinga_Tu_Madre

Hmm, so rich people became that way by making money with their money. So they don't produce anything, nor create jobs.

We should tax them at 90% like we used to generations ago.

Sugapea
Sugapea

Absolutely!  The high Tax-Rate from 1952 to 1963 was...91%.

We built Highways, Bridges, Schools, Parks...our nation was riding high!

The Wealthy of today...

Are not helping to pull Our American Wagon any longer.

And one political party's focus is to further Enrich those Already Rich!

Sidney Baxter
Sidney Baxter

like Leonard responded I am shocked that a stay at home mom can earn $4499 in one month on the computer. did you see this web page N u t t y R i c h dot cöm

CaptPolymath
CaptPolymath

How about "start out by being born rich?"

Then, convince your rich friends in Congress to help you get richer and then give more of your money to your rich kids. Keep in mind that Congress is 47% millionaires, while the US population is only about 7% millionaires, so of course they love to help the rich.

Congress will then cut your capital gains tax from 28% to 15%, while taxing wages at around 25% to 35%. Since the middle class mostly earn wages and the rich mostly earn capital gains, you're basically guaranteed to take money away from the middle class and get yourself even richer.

It's called a redistribution of the wealth, and it already happened.

lionelhutz1
lionelhutz1

Oh waaa waaaa cry more. Yea everyone who is rich was "born rich". Nobody earned it. What a line of junk. And by the way, these people pay more in taxes than you will earn in your life. All it really is, is class warfare. The Unions and Democrats have done a bang up job of convincing average Joes that anyone with more money than them is somehow evil. Just read what you wrote. You refuse to admit that maybe, just maybe, some of these rich people actually earned it. You just can't accept that. It just HAS to be ill-gotten. What is wrong with you?

Chinga_Tu_Madre
Chinga_Tu_Madre

What's wrong with class warfare? It would only mean the poor--from which the rich stole--are taking the war to the wealthy, powerful and disproportionately represented by the government.

The real harmful myth is that the rich earned their way there. 

Voda Beta
Voda Beta

Politicians failed Economics 101. Socialism exists in USA.

CaptPolymath
CaptPolymath

Socialism? As in free public education for k-12? Yeah, that's a terrible idea. And roads... we should all have to pave our own 1-mile section of interstate, right?

What about FREE police and firemen? I HATE that kind of socialism. When I'm being murdered, I have no problem giving the private police force my credit card first.

The worst socialism in America is probably Social Security. What an awful idea... after all, it was much better before when half the elderly were poor and couldn't afford basic living expenses, let alone their medications.

Ryan Pearson
Ryan Pearson

Pave your own road? guess what, I don't know how to build an apartment building but seem to live in one, i have never hunted my own food yet my refrigerator is full. i don't understand your logic. Because the government has historically done certain things that proves they could not have been done any other way?

Also, it is quite rare that the police actually stop a murder from happening. They just show up later. For the record I am not an anarchist, i can justify the police and can even live with roads. But social security was and is an awful idea.

CaptPolymath
CaptPolymath

To get rich in America, you should start out by having rich parents.

Here's why:

Capital gains is taxed at 15%, wages are taxed between around 25% and 35% (regressively, from the lowest earners to the highest earners).

Because the wealthy (based on this non-partisan tax data cited here) make MOST of their income from capital gains and NOT wages, they often pay a significantly lower tax rate than the middle class, who make most of their earnings from wages.

America is facing crippling national debt - mostly to China - and the interest payments alone are a huge drain on everything the government does for its citizens.

Most Americans, influenced by misleading facts and outright lies from conservatives, actually believe the US government wastes about 56 cents of every dollar it collects in taxes. Every reliable study finds government waste in the single-digit percents, like between 3 and 5%. Stories like the failure of Solyndra are over-hyped by the right and conservative news sources, even though the amount lost in that bad investment is a TINY portion of the budget and the deficit. This creates the false idea that government can't do anything right, and therefor shouldn't actually do anything, like help the poor or build roads or fund new technology or cleaner energy research.

Social services, which help the poor AND average people living just one major emergency away from being poor, are the most common target of budget cuts from Congress. Since reforms passed by Clinton and the more moderate GOP of the 1990s actually reformed welfare, it's no longer so easy to "freeload" off the system. In fact, programs like food stamps actually send the bulk of their assistance to the "working poor." Working poor are people who have a job, sometimes two or three, but because their jobs are of such low-quality and they have no benefits, they are unable to "lift themselves up by their bootstraps," which the Ayn Randians would have them do.

47% of Congress are millionaires. Only 7% of Americans at large are millionaires.

Congress has repeatedly acted to lower taxes for the wealthy, ending estate taxes (the death tax), cutting capital gains taxes from 28% to 15%, even allowing deductions for luxury yachts and private jets. (Job creators just gots to travel in style!) And of course those planes and yachts were built by someone, right?

The wealth of this country over the last 30 years has become increasingly concentrated in a smaller number of people at the very very top, while the middle class' wealth has plummeted. The middle class' holdings plummeted when their 401k's tanked (thanks to a mortgage meltdown), when their house value dropped 30 or 40% (thanks to a mortgage meltdown), or when they couldn't pay for their healthcare bills because their insurance company dropped them when they got sick. The rich, however, have mostly recovered their losses from the great recession.

Corporations are sitting on $2 billion in liquid capital, afraid to use it to hire people or make things because of "uncertainty." Uncertainty like pushing the government to the brink of defaulting on its debt, refusing to honestly deal with the deficit, refusing to negotiate for the good of the country and holding more filibusters  than any previous Congress in history. The filibuster is NOT - btw - part of the Constitution. Promoting the general welfare is.

Thirty or so years ago, CEOs made something like 30 times more in wages than their employees. Today, CEOs make around 300 times more than their employees. In that time, there was a massive redistribution of the wealth in America, and is was from the middle class to the rich.

During one of the greatest eras of expansion of the economy in America's history, the Truman/Eisenhower era, the top tax rate was 90% (not 35%), and the rich actually had to PAY that much, or very close to it. During this very productive part of our country's history, both the rich AND the middle class (and even the poor) benefited from better pay and union-won benefits and expanded government-provided social services. The government also spent lots of money to build the federal interstate system and other large projects.

In summary, to get rich in America, you should start out by being born rich.

Then, once you're born rich, you should convince your rich friends in Congress to make it easier for you to hold on to more of your money permanently, and pass more of it on to your rich children.

If the government can't balance the budget while letting you pay HALF the tax rate of someone earning $10 an hour, they should cut services to the poor.

And you certainly shouldn't let the government hand-out FREE healthcare, because out-of-control healthcare bills and rescinding coverage after someone gets sick are some of the easiest ways to keep the middle class from actually getting rich (or simply becoming financially stable).

Of course, you and your rich "job creator" friends will make profits (capital gains, taxed at a whopping 15%) from those poor people who were foolish enough to get sick in the first place.

So really, it's not so much the rich's fault for being rich, but the poor's fault for not being born rich.

Ryan Pearson
Ryan Pearson

Capital gains are the upside to taking a risk. 

Why should they be taxed at all?  There is just as much downside as upside before the fact. You only hear anger toward the winners after the fact, as if they just put their money into a sure thing.

That being said the tax code is a disaster and should be gutted. The fairest tax I can see is a consumption tax. 

LauraLoraine
LauraLoraine

Why should income of the working and lower middle class be taxed at all? You only hear contempt of the poor after the fact, as if we have upward mobility in this country.

Taxes for the lower half of the income distribution should be cut dramatically (maybe hang onto sales tax, gas tax, medicare/ss). Poor people use their money to buy stuff and pay off bills, whereas rich people use it to buy politicians, gamble with our mortgages and buy $1o,000 Italian leather sofas.

Capital gains should certainly not be a single penny less than the highest income tax bracket.

LauraLoraine
LauraLoraine

 Correction: the total percent, not amount.

LauraLoraine
LauraLoraine

 If you look at all taxes combined, the tax rate is roughly flat, with somewhat of a spike around the working professional income range.

The interwebs is saying the average earning family paid 8% pre-Bush tax cuts and are now paying 5.6%. They pay a greater proportion of their income in medicare/medicaid, ss, gas, etc than rich people, so despite their lower federal tax rates the total amount they pay is similar to Warren Buffet.

LuapLeiht1
LuapLeiht1

The entire lower half of the income scale does not pay any federal income taxes.

The majority of the top earners in this country pay about 15%.

The 48% in between these groups pays almost all of the taxes.

Chinga_Tu_Madre
Chinga_Tu_Madre

I take a risk by driving to work everyday. I take a risk when I walk into my office. I should be taxed at 15%.

LuapLeiht1
LuapLeiht1

By your name, I'd wager your biggest risk is someone's son or husband chasing you down with a shotgun.

useyourhead22
useyourhead22

65% of income for the rich was interest, dividends, and capital gains.  all taxed at lower rates than the hard earned money the middle class earn 100% of their income from.  this is the future of a Romney presidency.

Kamana Kapu
Kamana Kapu

Children should be taught at a very early age that working for a living is a sucker's out; that they shouldn't go to school to learn a trade or perform a service; that the big money is made when you use other people's money to make money.

NaveedXVO
NaveedXVO

except that no other person will give you money if you drop out of school and become a professional loser.

Aaron Wright
Aaron Wright

If nobody will give you money, then screw it. Can you push a lawn mower? Then you can make money and build a business doing that. If you honestly can't think of a single skill you have that is worth money, then you have other issues. You don't necessarily need someone to give you money. Just get something started, then expand later.

lionelhutz1
lionelhutz1

Working hard and taking risks and innovating. That's what these guys did. I looked through the names and these are hard working folks who took big risks. I don't understand the logic of hating successful people. Is it just envy? What drives the hatred. The vast, VAST majority of these guys aren't evil crooks. They just had the right combination of ideas and luck. 

CaptPolymath
CaptPolymath

So when Angelo Mozillo gave favors to members of Congress to help bolster Fannie Mae, which then bought most of the risky Countrywide loans, which mostly defaulted and Fannie Mae was bailed out by the taxpayers, that must mean that Angelo Mozillo LOST on his "big risk," right?

And since he lost on his big risk, he must have lost his entire fortune, right?

Oops, he lost on his "big risk" and he STILL walked away with $23.8 MILLION in severance, and $20 MILLION in "deferred compensation."

That's some risk to take...

Betting the taxpayers' money, losing and getting paid millions for it.

Aaron Wright
Aaron Wright

 And how many poor people have robbed banks? Or mugged someone on the streets? If you beat up someone on the streets and take the last $20 to their name, I would say that is worse than taking millions that are still only a small fraction of the overall wealth. Sure, taking millions is still wrong, but you can't cherry pick out the facts that support your point while ignoring the rest.

LuapLeiht1
LuapLeiht1

In this case, the "risk" turned out to not be a risk at all.

What should have happened is that Angelo should have gone bankrupt.  If he wants to take risks, great, but the public shouldn't backstop him.

However, we want to encourage people to take risks.  This is what drives innovation, and tax policy appropriately rewards this.

lionelhutz1
lionelhutz1

Wow. One evil rich guy on the list. Great detective work, Watson. So then you admit the vast majority actually EARNED their money? Or is that just impossible for you to do?

Jackson Packard
Jackson Packard

Why do you republicans over-use the word "hate"? Or "hatred".  I don't hate the rich but I do hate the fact that because they are rich there are so many loop holes to take advantage of. Take a common working man, working from paycheck to paycheck to house, feed, educate and clothe his family. Many manual labor persons don't have the extra dollars to put into investments, savings, etc.  The rich just sit back and watch their Capital gains continually grow.  The interest on these Capital gains is not money they "made" it's like a fungus...keeps growing and growing and at lower rates than the working class.   Why don't "YOU" stop hating???

George Mortensen
George Mortensen

 The "rich", specifically the top 10% earners, pay 70% of the taxes while 49% or the "common working men" pay zero in Federal Income Tax.  And as for you not hating the rich, you could have fooled me.

lionelhutz1
lionelhutz1

I can't educate out your ignorance, but the reason that countries tax capital gains less is because of the risk involved in investing. Let's say you tax capital gains at 50%. That means that if I invest my money in stock, I have 100% risk on the downside (I can lose every penny), but only 50% to gain on the upside. That is a demotivater and discourages investing. And, if you have a private sector job, it was built with someone's investment. Someone who may not have invested that money since they could have easily lost it. And if we taxed the snot out of them if, god forbid, the company actually DID succeed, many wouldn't bother to make those high-risk investments. 

Andrew Leane
Andrew Leane

I can only see that as a positive. We need to be making smarter decisions not riskier ones! Why is risk celebrated the way it is? If your business has a great business plan with a clear advantage people are going to invest in it. What about all those risky investment options invented by wall street? good idea? did it help anyone? no... 

Aaron Wright
Aaron Wright

 I totally agree with you. Most wealthy people are not crooks, or even evil. Most just worked hard and never stopped trying. Most of them failed numerous times before finally making it big. This includes such big names as Bill Gates and Richard Branson, who had businesses that failed.

I can't stand people who accuse the wealthy of being evil. Sure, some are, but so are some poor people. Rather than hate them for being wealthy, learn from them, then join them.

CaptPolymath
CaptPolymath

It also helps the rich to have rich friends in Congress who cut capital gains taxes from 28% to 15%, and cut benefits to the poor to pay for it. Congress is 47% millionaires, when the US is only 7% millionaires.

Aaron Wright
Aaron Wright

So maybe Congress cut the capital gains tax. So what? Go make your own capital gains that will also be taxed at the lower rate, just like theirs. It is legal, after all. Like I said before, just do what the rich have done. If you can't take some time to learn how to make money, that is your own fault.

lionelhutz1
lionelhutz1

Mark Zuckerburg had friends in Congress when he created Facebook? And his co-founders? All of them did to? Bill Gates? Steve Jobs? They all had friends in congress when they made great products with millions of users? You just drink the Liberal Kool Aid down to the last drop. Think before you write next time.

Cinderita
Cinderita

A lot of them are just plain crooks.  Have you ever noticed how many of these guys can win millions at the poker table.  They are just born thiefs. 

LoudRambler
LoudRambler

 Did these capital gains include "capital gains" by hedge fund managers and/or stock options for top management?

 I see more a tax loophole than anything else here...

CaptPolymath
CaptPolymath

And the loophole was created by rich people lobbying rich members of Congress and giving millions to their super pacs.

Money buys power buys money buys power...

Lazaro Gonzalez
Lazaro Gonzalez

be ready USA and careful because this is a plan, USA debt is almost 16 trillions dollars, they are doing the same dirty work that they did to Mexico!! thats whey Mexican are very poor!!

Dina Hoofus
Dina Hoofus

One more thing...capital gains comes from post-tax income that is taxed AGAIN. So, money had to initially be earned in order to be invested. What has happened to journalism?

Dina Hoofus
Dina Hoofus

Duh, I understand all that Justin and Cinderalla - I was talking about the capital gains tax being something that is taxed on gains after an investment was made ....with money that had initially been taxed before investing. Read between the lines know-it-alls.

Hextall
Hextall

 Dina, so you agree it is not a double tax? 

Your use of "taxed AGAIN" is confusing.

Justin Bussell
Justin Bussell

We did read between the lines. You haven't said anything here that wasn't obvious in your first post. The confusing part about this is that you are not clear on what your point is. Of course people get taxed on their income. If they decide to invest some of that and it makes generates even more income, then they get taxed on that gain/income.

Oh hang on.. I think i'm understanding what you're trying to say. Simply put, these people worked hard to earn their money, to have enough to invest, to then earn the massive capital gains to get onto this list.

useyourhead22
useyourhead22

dina DOOFUS.  wow, you really screwed this post up.  i hope you get an education before blindly hearing about "double taxation" from the right wing media.

Dina Hoofus
Dina Hoofus

U do not get to invest money earned without it being taxed first, fuzzyheadeddrunk.

feebster
feebster

CEOs and other high level execs are often compinsated more with stock than cash (without being taxed first).  Thus, much of their income is taxed at the lower capital gain rate.  Warren Bufffet said himself that he pays a lower percentage of income tax than his secretary because of this.

CaptPolymath
CaptPolymath

It is a myth that capital gains is a "double tax."

You earn money from wages, that is taxed.

The money you earned from wages is "invested" in something, and earns you NEW money - a gain on a capital investment.

That NEW money is taxed as capital gains. The money you earned as wages and invested is never taxed again.

Where is the double taxation? Please...!

Justin Bussell
Justin Bussell

Are you serious? Do you understand capital gains tax? It's a tax on the difference between your original capital investment and the amount earned once sold (a capital GAIN). Taxes are not payable on your original capital. And capital gains tax rates are lower than income tax rates.

ConceptVBS
ConceptVBS

You are missing his point.

The dollars used to purchase the original capital investment are post - tax dollars.

Therefore, any subsequent gains from the capital is also taxed as well.

Hence, a double taxation.

Fat Milhouse Sean
Fat Milhouse Sean

So?  You're making a silly statement with no real point than to inject "taxes" into the conversation with the goal of furthering the idea that taxation is "bad".  Very high school. 

Dina Hoofus
Dina Hoofus

You are kindergarten if u didn't understand the article and the section on capital gains TAXES.