How the Rich Make their Money

Jeff Haden reporting on how the rich get rich for INC:

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.

Not only is the barrier for getting into the top 400 is going down, but the average too is dropping:

The average earnings were $202.4 million [in 2009], a lot of money but well down from the $334.8 million average in 2007.

It’s hard to draw any conclusions from these statistics, as tempting as it seems, since a significantly lower low-end can compensate for a higher high-end. It is, however, interesting to note this trend, since the common mantra is that the rich just keep getting richer. Some of them are and some of them aren’t, which is completely natural. We can’t fight the 80/20 rule.

What consistently catches my eye is how the rich make their money. In 2009, the top 400 people made 45.8% of their adjusted gross income from capital gains. This compares to 8.6% in wages/salaries and a mere 6.6% from interest.

I suppose this isn’t really news to anyone. You can’t get rich by getting a high paying job or properly investing money. Capital gains, oversimplified as the buying and selling of companies, produces the largest returns and is taxed less any other form of income. That’s how to make boatloads of money. So much for that promising career track.

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