This is a political post – if you want to leave comments great but I have moderation turned on and I will delete any comments that are personal attacks or otherwise offensive.
When did millionaire shift from a measure of assets to a measure of income?
These are far from the same thing. Growing up I recall that a “millionaire” was someone who was worth over $1M dollars. This was notable and still fairly rare but it could and did include a lot of people who didn’t have a lot of income just, for example, the fortune to own a home in a state with high property values such as California.
But in the past few years, I’m not sure when this started, millionaires has started to be used to denote people with a yearly INCOME of greater than $1M. This is a very small number of people (though apparently the number of people in this category has grown in recent years as the very wealthiest people in the country have prospered even as nearly everyone else have not). But increasingly public policy is being dictated by folks who seem to think that changes that impact this small and exceptionally wealthy group of individuals are more important than policies that impact the majority of households. One party, the GOP, seems nearly entirely focused on preventing any tax increase of any form on anyone even as they simultaneously work to prevent a continuation of a tax break on most working families (the inherent contradiction in this position seems to have escaped them).
An individual or family earning over $1M a year is earning 20x the median income (roughly) of the typical American family. In fact they earn in a month what few families in the US earn in the entire year. When you are earning on that scale you likely have a mix of earned income (i.e. salaries) and capital gains (i.e. earnings on investments or things deemed by quirks of the tax law to be investments – such as VC’s earnings from their funds even though most of the money in those funds is investors’ money not most VC’s own personal funds). While most people don’t have a lot of control over when they get their salary (unless they quit their job) entrepreneurs, investors and money managers have a great deal of control over when they realize capital gains – since this occurs when they sell an investment at a profit or when their investments pay out a dividend (which in the case of many very high net worth individuals may be something they have enough control over that investment to dictate when and if that happens). And in many cases there are legal means to defer recognition of capital gains via reinvestment of those gains in similar investments or via offsetting losses (this gets complicated and I’m neither a lawyer or an accountant – in the case of real estate investments there are exchange rules that can come into play, in the case of financial investments investors may be able to sell off assets that have lost value when they also sell off assets that have gained value which does make sense as a legal means of offsetting gains but also allows investors to time and control how much income to recognize in a given timeframe)
But all of that complexity aside the question I’m curious about is when did millionaire become a term for folks earning $1M or more a year and why hasn’t this change been more emphasized in popular discourse and debate? It seems fundamentally different to earn $1M in a year than to be worth over $1M. The likely average net worth of individuals earning $1M (or more) each year is vastly greater than $1M – for example to earn $1M in interest payments would require assets of nearly $25-30M (3-4% interest earnings though with higher risk investments higher interest might be available but Treasuries pay even less than that at the moment). To earn $1M in rents from properties even in the current depressed real estate market would likely require $10M (or more) worth of properties and for that $1M to be income not gross rents would require even more (after paying for the upkeep of the properties, for real estate taxes, for professional management and all the other fees and costs with running such a large series of rental properties).
Very few small businesses have over $1m in gross annual sales, let alone have incomes of over $1M (where “income” is roughly defined as being gross income after costs of the goods/services sold by the business). Few businesses have gross margins greater than 30% – for gross income to be $1m implies gross sales of over $3M (roughly $3.3M actually). If someone is the owner of such a business they have a lot of legal means to control how (and if) that $1m in gross profits flows through the business to them as the owners. They can pay a portion of that as earned income, they can pay out much of it as a dividend (getting capital gains rates not income tax rates on that portion) and they can reinvest much of it into the business (or potentially other businesses) without having to pay personal taxes (or potentially much corporate taxes) on it. Though the details on all that depend on the legal structure of the business, the state they do business in and many other factors.