According to a CBO report, the top 1% of income earners saw a 275% increase in their inflation-adjusted, after-tax income between 1979 and 2007.
By our quick math, that 275% increase works out to be an annualized rate of change of 4.83% over the CBO's oddly cherry-picked 28 year period from 1979 through 2007 (click the links for the years to understand why).
By contrast, our S&P 500 at Your Fingertips tool indicates that if the Top 1% had just invested their after-tax income in an S&P 500 index fund in January 1979 and then let it ride to December 2007 as the stock market peaked, fully reinvesting dividends all that time, they would have seen an inflation-adjusted, tax-free rate of return of 8.70%.
And that's without even bothering to work! If taxed at the maximum 1979 capital gains tax rate of 28%, their after-tax income would represent an annualized rate of return of 6.26% annually. Or rather, a 448% increase in their inflation-adjusted, after-tax income!*
So clearly, the Top 1% were total suckers for even bothering to put their money to work at all doing the other things they apparently did during those 28 years that pushed their effective rate of returns down.
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
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