The Truth About the 'One Percent' -- By James Piereson, The Wall Street Journal

'Income inequality" has emerged as the issue du jour in national politics, threatening to displace the unpopular health-care law and the slow-growing economy this election year. Speeches and columns now routinely attack the banks or "the undeserving rich" and call on Washington to do something to redistribute income from the "super rich" to the poor and middle class. Democrats from President Obama to the new mayor of New York City are leading the charge on behalf of the "99%."

This crusade is based on three questionable claims. One is that the wealthy are mostly Wall Street bankers benefitting from rising stock and real estate prices, or executives who pay themselves extravagant salaries. Another claim is that such people unfairly benefit from a system that taxes capital gains at half the highest marginal rate paid by those who earn salaries and wages. Then there is the assertion that the "super rich" have abundant funds that can be taxed to improve the living standards of everyone else. 

All of these claims are false. By promoting them, the president and his supporters may hope to distract attention from ObamaCare and the economy. Yet they are igniting hopes they can't possibly fulfill. 

In 2010, the latest year for which we have complete data, roughly 119 million households filed tax returns with the IRS, leaving about 1.1 million households in the top 1% of the income distribution. According to this data compiled by the Congressional Budget Office, the top 1% received 15% of the national household income (before taxes) in 2010, up from 9% in 1980. A taxpayer needed a taxable income of $307,000 to enter the top 1%, a figure that hardly qualifies as "rich" today, especially in cities like New York, Chicago, Los Angeles or San Francisco. 

According to research on individual tax returns in 2004 and 2005 by Jon Bakija of Williams College, Adam Cole of the Treasury Department and Bradley T. Heim of Indiana University, the top 1% consists primarily of salaried executives at nonfinancial businesses (30%) and secondarily of doctors (14%), people working in finance (13%) and lawyers (8%). Among the "super rich" in the top 0.1% (about 110,000 households), the distribution still favors business executives (41%) over people in finance (18%).

 Given these percentages, there were approximately 330,000 salaried non-financial executives in the top 1% and some 45,000 in the top 0.1%. These are numbers far too large to be accounted for by senior executives in the Fortune 500. The vast majority must have earned their salaries in small- and medium-size businesses—not in the largest firms and definitely not in finance.

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