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What percent of a rich person's income does he spend on himself?

To simplify the writing here, assume our hypothetical rich person is a guy. Let's say he pays about half of his income in taxes. That sounds about right, especially if you include sales taxes and property taxes. Now let's say he has a wife and three kids. Most of his living expenses, such as his houses, benefit all five members of the family. So divide most of his expenses by five to get his individual piece.

In our complicated world, the rich guy might have a first wife to whom he pays alimony, or he might support some other family members who need some help. And let's say he donates a healthy part of his income to charity.

So far, we've only discussed the money that flows in and out during the rich guy's lifetime. The bulk of a rich guy's wealth passes to heirs.

Net it all out, and I'll bet your typical rich guy spends only 5% of his income on himself. The rest goes to the government, family members, and charity. Therefore, arguably, every time a rich guy gets up and goes to work, it's 95% charity, roughly speaking.

Now let's say the rich guy made his money by starting a company that employs a hundred people. Half of the firm's gross income might flow to employees and investors. Then there is an economic multiplier effect as those employees buy goods and services, and pay their own taxes. A wealthy founder of a business might spend on himself only .001% of the gross income his company generates.

I know, I know: You still hate our hypothetical rich turd because he has a lot of toys, and lots of control over how his money is used. And every time he buys a Rolex instead of feeding a homeless family, he's not exactly walking with the saints. That's what society teaches us to think.

I prefer to divide the world into two groups: People who are trying, and people who aren't. I respect anyone who is making a constructive effort to improve any part of the world, including his or her own little piece. When people apply effort, wealth is mostly a result of luck, in terms of genetics, geography, or timing. I don't begrudge anyone their luck.

 
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0 Rank Up Rank Down
May 4, 2012
If I may reply, Scott:
Yes, of course you need both, investing and spending.

However, I think that there are more ways to get investment (public venture capital funds, banks, IPOs, just plain growth) and ownership than to get spending (buying stuff). Therefore rich investors are less important than rich customers. (Rich customers are in themselves a source for investing, that is, reinvested profits. Quite apart from rich customers being rich people too, with all the consequences for investing.)

For investment you need surplus. After that, it's simply a matter of the available investment vehicles. "The rich capitalist" is certainly one such investment vehicle, but today no longer the only one.

Yes, one needs rich and poor too but, I think, mainly for motivational purposes, not for investment.
 
 
0 Rank Up Rank Down
May 4, 2012
You can turn the argument around:
Ultimately the economy lives from spending money for things.

If the money is concentrated in few hands who can't spend much of it, spending will go down and the economy will enter recession. Bad for everybody.

So, he question becomes, how do you have to distribute income in order to maximize spending?

[There's a long list of companies that only exist because rich people invested in the form of venture capital. Money doesn't sit around in mattresses. You need both spending and investment for a robust economy. -- Scott]
 
 
Apr 28, 2012
@Drowlord - I did misspeak. The total INCOME of all millionaires and billionaires in America is around $1 trillion. So if we taxed all of them at 100% of their income, we'd add about $1 trillion, obviously, to our revenues. As the federal budget is roughly $4 trillion per year, and the deficit is $1.3 trillion, then taxing every one of those evil rich people would not even pay off the deficit. And you could only do it once. Not to mention the effect on the economy that would have.

We actually have, according to a Spectrum Group study, about 7.8 million households with a net worth of $1 million or more. Of course, that's income before taxes, what the accounting folks call EBIT. So after current taxes, then, if we took away all their net worth and gave it to our beloved, benevolent government, you'd raise an additional (from the sources I've read) just shy of $12 trillion. Since our national debt is currently $15 trillion and rising, it would reduce it by 2/3; but again, you could only do it once. And I don't think even the wildest liberal short of a pure communist would consider that to be in any way reasonable.

But that's not the real problem, as horrible as this one is. The unfunded liabilities of all entitlements is roughly $140 trillion, which is about twice the amount of money in the world. So if we just consume the wealth and income of everyone on Earth twice over, we'll be able to keep the promises the government has made to our people. Is there anyone anywhere who really thinks that can happen? No.

The point to consider here is that taxes are independent of spending. As long as the federal government can borrow enough to spent whatever it wants, it doesn't matter what the tax rates are. Taxing the rich is just a straw man to try to make people believe that their lives would be better if they made the rich people's lives worse. That is not true, and it is disingenuous for anyone to say it. When the government makes promises it can't keep, but keeps propping up the current generation of promises with trillions borrowed, I think it would be foolish and irresponsible to do anything other than DEMAND fiscal reforms. If you disagree, I'd sure like to know why!

I say again, persecuting people who have traded leisure time for success shouldn't be penalized unfairly. The top 10% of wage earners in the US pay about 70% of all income taxes, while the bottom 47% pay nothing. We have co-pays at the doctor's office to try to keep frivolous abuse of health care at a minimum; why not have everyone pay something? That's a real shared sacrifice - not the one the Obama administration calls taxing the rich.

One more time: the problem is not the level of taxation in this country; it is the level of government spending, waste, fraud and abuse. That's where we all should be focusing.

Thanks for your comment.
 
 
Apr 26, 2012
I assume what your trying to say is...

At what point of wealth, does money mean nothing to them in their personal lives.
I imagine I can only buy so much crap... Just like I can only put so many features on a phone.

At what point does wealth become "truthfully" ridiculously obscene to oneself, And their actual needs.



 
 
0 Rank Up Rank Down
Apr 26, 2012
@Kingdinosaur

Agree.

Thank you for the link.

.
 
 
-1 Rank Up Rank Down
Apr 26, 2012
Scott, let's analyze your claim that storing money in a bank is "every bit as essential to the overall health of the economy as spending money". Your argument is that the bank uses this money to give out loans. But any money loaned out has to be recouped immediately, or the bank has failed in its duty. $X loaned out has to be recouped by siphoning $X out of the economy, whether it be from others investing or repayment of loans. The net result is that $X is taken out of the economy. (And of course, for the bank to bother existing in the first place it has to get fatter through interest at a faster rate than other people get fatter. That's another reason banks are so unsavoury.)

This squares with intuition. If everyone spent all of his earnings, the world would be different, but we'd survive. If everyone was locked in an endless cycle of investments and loans, we'd all be corpses.
 
 
+15 Rank Up Rank Down
Apr 26, 2012
"[If voters thought in terms of absolute dollars instead of percentages, everyone would favor reducing the taxes of the rich because that group pays far more in absolute dollars. All I'm doing is adding context. If you hate the rich, you're hating a class of people who transfer 95% of their wealth to others. And most of the rich go to work every day to make that happen. -- Scott]"

I don't think for a second everyone would favor reducing the taxes of the rich if voters thought in absolute terms - there's two sides to that argument. You seem to be assuming everyone would take a perspective of "how much they contribute" and ignore the side of "how much they keep" (e.g. at it's extreme, the "X amount of dollars is enough for everyone" argument - I should make clear I'm not that extreme myself, but there's plenty of voters who are).

When you talk about adding context and hating the rich, I'm not sure what "they only spend 5% of their income on themselves" is supposed to add. It depends on why people hate the rich to start off with, surely? If it's because they mistakenly think they're greedily spending it all on themselves, then certainly it puts that in context (although maybe it's not that convincing an argument when getting to it relies on things like "they share their mansions with their families" and "they give lots to charity, honest.")

But I would suggest that a great deal of what hatred there is for the rich out there is not directed at all the rich, but only some of the rich, and is not directed so much at how much they have, but how they are perceived to make it - corruption, anti-competitive practices, driving the pay and conditions of their workers down, etc., etc. (and I'm sure those doing those things put a lot of effort into it...). An argument about how much the rich spend on themselves means little in this context.
 
 
Apr 26, 2012
@Phantom II, The numbers I usually see suggest that all BILLIONAIRES combined have a net worth in the $1 Trillion range. The net worth of all MILLIONAIRES is closer to $40 Trillion. This, primarily on account of the fact that we have about a million millionaires in the US, and only 400 billionaires -- most of whom have less than $2 billion.

Of course... such numbers are largely meaningless because market determines value for stocks, real estate, art, and durable goods.... A $1 million mansion isn't really worth $1 million if nobody has $1 million to buy it. The government can't turn around and sell it to pay another bill. For that matter, who would want to buy it, knowing that the government is looking to steal it back if anyone took a mortgage and could eventually pay it off.
 
 
Apr 26, 2012
Everyone seems to be missing a very important point, namely: a lot of what Scott has mentioned cannot be defined as charity. Money and resources you spend on your current family is not charity. And if it were it would be a charity common to all working folks, so the rich don't have it worse than anyone else there. As for what their heirs inherit, isn't having something for your heirs to inherit a big part of accumulating a fortune as opposed to blowing it on limos? If leaving something to your grandkids is nothing more than charity then why do the rich have such a problem having the government take the money instead of the grandkids?

[Because the government wastes it. That's the common view. If a rich guy thought his own kids would waste the money whereas the government would spend it wisely for the benefit of humanity, things might be different. There's a reason Bill Gates doesn't just hand his extra money over to the government. -- Scott]
 
 
Apr 26, 2012
There's no shortage of people out there who will only ever be a drain on society. They'll never give back to the system, in fact they'll actively avoid giving back. Take, take, take.

If the rich people give more, these people will just take more. Society won't advance in proportion to the amount given.

This is the real problem, along with government wastage (bailouts, security theaters, trillions spent waging "war on !$%*!$%*!$%*!$
 
 
Apr 26, 2012
@Kingdinosaur - be very careful with the numbers. It's not clear, but it might be that only 50 million tax returns consist of people who pay net FEDERAL income tax. That does not mean that only 50 million people pay income tax.
 
 
Apr 26, 2012
This post is focused on how much of a rich person's income the spend directly on themselves, while appearing to be focused on how much of a rich person's income is spent on their own benefit. I believe 5% is an accurate estimate. How much could a rich person spend on himself directly? If he is a businessman, his business will supply him with a car at his request. Therefore, the money he earns goes towards "the company", and "the company" supplies him with a car at his request, because it benefits "the company". In the example of his house, I propose that the man is benefited 100%, as well as his wife and each child benefited 100%. Sharing the house with 4 others does not take away the benefit of the first, but rather adds to it. Having a wife and children adds to the quality of the man's life. Otherwise, he wouldn't have them. And what rich man donates to charity without having a plaque dedicated to him, or a building named after him, or a major press release? I believe that if we want to measure how much of a rich man's money does a rich man keep, true and honest charity would consist between 0-5% on average. And that is being generous. Because true charity doesn't have strings attached, ulterior motives, etc. Even alimony is paid because it must. The rich man legally doesn't have a choice. The rich man is benefited by most of his money, if not all. If a rich man were to truly give 95% of his income (after taxes) to charity, he would have my greatest respect. But rich men don't usually do this. If they did, they wouldn't be very "rich". At least monetarily.
 
 
Apr 26, 2012
DNA, there's at least a small percentage of the population that doesn't care: they believe if someone else has wealth, that means they can't or they think that wealth in all forms is evil due to some twisted and corrupted version of fairness. A lot more people don't know that most of the wealthy pay half of their income in taxes and are lead to believe that the rich aren't paying their fair share because of it.

But when you consider that of this country of 320 million people we've got fewer than 50 million that pay income taxes, I tend to agree with you that you can't have wealth (or a healthy economy) and a welfare state... those on welfare just keep growing in numbers and demands until the system collaspes. See modern greece for proof of that.

The welfare state is a commons.

http://en.wikipedia.org/wiki/Tragedy_of_the_commons
 
 
+1 Rank Up Rank Down
Apr 26, 2012
I don't know... I'm not convinced thinking in percentage terms is the only way to go here. If a rich guy only spends 5% of his income on himself, but that 5% is still more (potentially vastly more, depending on just how rich we're talking) than the entire income of another guy working not one but two low-paid jobs, what does that tell you?

The significance of the percentages change with the distribution of wealth. The more the rich guys have, the higher a percentage they can afford to 'give away' while still keeping the same amount for themselves in absolute terms. It's easy to say "hey, the rich only spend 5% of their income on themselves!" but without looking at just how much that is in absolute terms as well, you're not really looking at the whole picture.

Of course, you might not care if you think percentage of income is all that counts. But do you?

[If voters thought in terms of absolute dollars instead of percentages, everyone would favor reducing the taxes of the rich because that group pays far more in absolute dollars. All I'm doing is adding context. If you hate the rich, you're hating a class of people who transfer 95% of their wealth to others. And most of the rich go to work every day to make that happen. -- Scott]
 
 
Apr 26, 2012
"Luck is a necessary condition. Without it, no one would be rich. It wouldn't make sense to put a percentage value on it. " -Scott

I get that.

I guess I'm always trying to figure out your thoughts on a "luck scale" for rich people.

For example a lottery winner is a "10" (little work, tons of luck) whereas a guy who grew up poor, but started a billion dollar business would be "0" (tons of work, plus some luck). Someone who grew up well off and then became even richer might be a 6 (Bill Gates, Mark Zuckerburg, etc).

Where would you say you sit on that scale and where would you say most rich people you've met sit on that scale?

[I think hard work, and smart risks, is what allows luck to find you. The dollar amount of that luck is variable. In 1979 I arrived in California with an education, two suitcases, good health, a strong work ethic, and $1,500. My parents got me that far. The rest I did myself. -- Scott]
 
 
Apr 26, 2012
I prefer to divide the world in two groups.
People who are trying to become rich on their own merit and people who are always eyeing other people's wealth. Incidentally, the second course of action is a sure recipe for perpetual poverty.

 
 
+1 Rank Up Rank Down
Apr 26, 2012
Scott,

Wealth to be deserved has to be respected. Sustainable distribution is not possible.

Let me elaborate.

For some strange reason, I have always seen a similarity between Aristotle Onassis (The Greek Tycoon who died in '75) and Oskar Schindler. Both knew the value of wealth and what to do with it.

The early '70s saw a ruthless and indiscriminate crusade against the wealthy. People did not distinguish between dumb aristocrats and businessmen.

Onassis is not an exception. The rotten state of the Greek economy today is an evidence of the ideals that they supported in the last 3 decades.

Welfare states and wealth are incompatible.

I hope the US does not follow the European model.

The dynamic youth that fuels your economy must have good reasons to respect wealth.

.
 
 
+13 Rank Up Rank Down
Apr 26, 2012
I've never had anything against rich people per se at all, and I don't think many people do - I do have a problem with multi-billionaires who insist on consciously rigging the system to funnel even more of the world's wealth to themselves, though, long past the point where it could afford them any more of life's luxuries - see the citibank "plutocracy" memo: these people just have a sick fetish for leaving millions destitute.

The defense of the mere millionaire who enjoys the odd yacht now and then is a red herring/smokescreen: the current discontent is with the corrupt ultra-elite financial mafia who buy politicians and treat countries like cheap hotels with no security guards.

Not to mention, there's something intrinsically distasteful at the sight of someone running an elaborate lawn fountain while millions die of thirst outside his razor wire gates ... I don't know if he shouldn't be "allowed" to do that - but I don't know what kind of person would insist on being able to.
 
 
Apr 26, 2012
Interesting you say it's mostly a matter of luck. If you had to put a percentage on how much of earned wealth is luck, what would you say that number is for yourself personally? And then for wealthy people in general?

[Luck is a necessary condition. Without it, no one would be rich. It wouldn't make sense to put a percentage value on it. -- Scott]
 
 
+10 Rank Up Rank Down
Apr 26, 2012
I grew up with a guy named T. T's mum was a dealer, that was the family business. I remember going over to his house after school and helping him with his chores so we could go play. We had to cut n bag up into 20's and 50's and we sometimes had to buy more when she was out.

T couldn't read. I was luckier, I was able to teach myself, but our school never had fixed teachers, so few of us learnt anything at all.

Things didnt end well for him. Or for most of us. None of us expected otherwise.

The point?

Hating the rich isn't something that is taught by society. I learnt it for myself at the age of 10 every time I saw clean, happy, children who had enough to eat and two sane parents. All I felt was rage. Rage at the kids who didn't have s#1t lives. Rage at the people who could go to university. RAGE at people who had a future. How DARE they they have a future when I had none! How was that fair!! Just thinking back to those times 20 years ago is making my heartrate shoot up

I was so lucky. I managed to learn to read and eventually find my way into a good paying career and marry into a middle class family. So I get where you are coming from Scott. You aren't a bad guy: you work hard, you pay tax, you support a family, you are helping keep your economy going.

But don't be surprised if your argument of "hey, I have to support a family and pay some tax and I wont live forever" doesn't get you much sympathy.

How much do the Rich keep ? The same percentage as the Poor. Which will still be more money than the poor will ever see.

[I would never expect sympathy. Nor would I want it. I'm just adding context to a larger conversation about wealth distribution. Context is not opinion. -- Scott]
 
 
 
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