Unexpectedly Intriguing!
October 27, 2011

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%.

Suckers - Source: Erie.gov

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 those other things they apparently did during those 28 years that pushed their effective rate of returns down. Like work!

[* Not really, and for the record, the analysis presented in this post is wrong, on purpose, although we suspect that certain people who will be really irritated by this post won't be able to explain why. If it helps, sometimes, we post things just to upset certain people, who like to think they know it all, but who are really short in the mental horsepower department, among others!]

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