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Income vs. Wealth

Income and wealth have become almost interchangeable in our culture, but they’re not the same. Income is the measure of your compensation. It’s how much money you get paid to work.

Wealth, on the other hand, is far more complex. Wealth is the sum of the values of all assets owned by an individual—his home, his cars (less depreciation), stocks, bonds, just about anything that can be sold is an asset. Wealth is certainly influenced by income—a higher income may make it easier to save, and thus, easier to become wealthy—but it is not directly linked to income. Further, a high income does not guarantee wealth. If you don’t believe me, Google bankrupt NFL players.

The difference between income and wealth is key to understanding why the super-rich, people like Warren Buffet or Bill Gates, support tax policies that seem counter-intuitive. Why would a man worth billions of dollars support raising the income tax? The answer is simple: their wealth is largely independent of “income.” Most of the so-called “super-rich” would be, at most, only marginally affected by changes to the income tax.

In 2004, Bill Gates received just shy of a million dollars in salary and bonuses. Granted, this is enough to put him in the top tax bracket, but Gates’ net worth broke the $1 billion mark at 31. Even if we assume Gates had no expenses and paid no taxes, that feat would have taken him more than 1,000 years if he’d accomplished it based on salary alone. Forbes currently estimates Gates’ net worth at 66 Billion. That’s more than 66,000 years worth of salary for Gates—and that ignores his salary reduction to around $200 thousand per year.

To put things in even clearer focus, Gates’ property taxes for his home are estimated to be over $1 million each year. In other words, even before taxes his salary was likely never sufficient to pay the tax bill for his Washington home. Bill Gates does not live on “income.” In contrast to his (relatively) modest salary, Gates’ more than 440 million shares of Microsoft stock earned him more than $282 million dollars in 2011.

Gates’ “income” of $228,000 in 2011 amounted to less than 1 tenth of 1 percent of his total 2011 earnings. If the U.S. government confiscated all his “income,” it would be the equivalent of losing a whole $8 out of a $10,000 check, less when you consider the taxes he’s already paying on that income.

Few would miss $8 out of $10,000. As such, it makes perfect sense for billionaires to support increases on the income tax, which buy them gratitude with liberal class warriors, but you won’t see them calling for increases to the capital gains tax or the institution of a wealth tax.

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