The top 1% is rich beyond imagination – literally. It robs governments of billions of dollars in tax revenue, and even masks changes in inequality levels around the world. Separate studies by Philippe Vermeulen, an economist at the European Central Bank (ECB), and Gabriel Zucman of the London School of Economics, show that estimates of the super-rich’s wealth – hidden through tax havens and refusals to answer questionnaires – are far lower than reality. Corrections to similar errors in income data almost completely erase the progress made between 1988 and 2008 in narrowing the gap between the world’s rich and poor, according to the World Bank study.
"We have always suspected that the top 1% underreported their income," said Joseph Stiglitz, a Nobel laureate and author of The Price of Inequality. 'There is a growing sense that our system is rigged and unfair.' The failure to obtain real data on the extent of wealth and income for the top 1% means that economists and policymakers do not have a proper understanding of the extent of corruption, which prevents them from addressing it. For example, if it were known that profits and assets were more concentrated, that information would spur support for changing the tax structure, Zuckman said.
"If you don’t have a good idea of what the world looks like, it’s hard to predict what the consequences of the actions will be," said Carter Price, a senior mathematician at the Center for Equitable Growth in Washington, D.C., who focuses on issues of economic inequality. "It’s hard to assess in retrospect what the consequences of a particular policy were.".
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Austria following the United States
America's super-rich - the 0.1% with a net worth of at least $20 million - held $23.5% of total U.S. wealth in 2012, according to a calculation that also includes estimates of the amount of wealth hidden in offshore tax havens, according to Zuckman, a visiting professor at the University of California, Berkeley. Zuckman's previous estimate was $21.5%. In his efforts to compile more accurate tax records, Zuckman is collaborating with Thomas Piketty, author of the best-selling "Capital in the 21st Century," and Emmanuel Saz, a professor at the University of California, Berkeley.
Survey data on the ultra-rich also underestimate the true numbers, and one reason is that the samples are too small, according to the ECB's Vermeulen in a report he wrote in July. The top 1% held 35%-37% of total wealth in 2010 - a higher figure than the 34% in the Federal Reserve's Survey of Consumer Financial Conditions, Vermeulen argues in his report. The Fed already oversamples the wealthy to get more accurate data, but Vermeulen corrected the data and supplemented it with Forbes' rankings of the world's billionaires.
Greater concentration of income and wealth at the top may explain why consumer spending is recording a slow recovery from the recession that ended in June 2009, according to Stiglitz.
""Some of the problems with the performance of the economic system are related to the real level of inequality, not the level of inequality that appears in the estimates," Stiglitz said.
Since the 18-month recession ended, the Bloomberg Industries Mass Merchant Index, which includes Wal-Mart Stores and Dollar General, has gained 801%, less than the 1091% gain in the Standard & Poor's. But luxury retailers are thriving, as shown by the 2541% jump in the Bloomberg Industries Global Luxury Goods Index, which includes companies such as Coach, Hermès International and Prada Spa.
Jeffrey Hollander, who is among the top 1% in the U.S., is not surprised that the wealth of the world's richest is greater than current estimates. "The more money you have, the easier it is for you to hide it and evade taxes," said Hollander, 59, one of the founders of the cleaning and personal care products maker Seventh Generation. Hollander is a member of Responsible Wealth, a Boston-based network promoting economic fairness.
The wealth of the super-rich in Europe may be even more poorly estimated than in the United States, according to Zucman. About $101 trillion of the wealth of Europe’s ultra-rich is held in offshore accounts, compared with $41 trillion in the United States, according to a report Zucman authored in May. Many of the wealthy hold parts of their wealth in funds and holding companies, making the calculations difficult.
It is possible that some European countries, "especially Britain," are "almost as — or even more — unequal than the United States," said Zucman. His comments contradict current data that show these countries are more equal in terms of wealth distribution. European surveys do less than American surveys to correct for sampling errors, and many of them are less accurate, according to Vermoulin’s findings. For example, the top 1% in Austria owned 36% of the country’s wealth in 2013 — if you also take into account Forbes data. That figure is 13% higher than one of the survey results, meaning that Austria’s level of inequality is very close to that in the United States.
The lack of information about the income and wealth of the world’s ultra-rich means that the ultra-rich pay less in taxes. Capital held in offshore accounts costs the U.S. government $36 billion a year in lost income, capital gains, inheritance and estate taxes, according to Zuckman’s report. That’s enough to buy lunch for every student in New York City’s public schools for more than 100 years. Europe loses $75 billion.
