The “Top One Percent” Own Businesses

Ernest Hemingway apparently got the answer wrong when F. Scott Fitzgerald told him “the rich are different from you and me” and Hemingway responded “Yes, they’ve got more money.”

His answer should have been: “They own businesses.”

The chart at the bottom of the page shows the probability that a taxpayer includes a partnership or S-Corp on his or her federal income tax return. As you can see, the odds of having business income increase substantially once adjusted gross income (AGI) exceeds $100,000. More than 40 percent percent of people with an AGI of $250,000 or more have one of these two types of businesses. More than 72 percent of the really wealthy – people who earn more than $1 million per year – have a partnership or S-Corp. And nine-in-ten of the super wealthy – people with an AGI in excess of $10 million – have one of these.

The correlation between AGI and the odds of having a partnership or S Corp isn’t just a curiosity. It also tells us something about who experiences collateral damage from recent criticism of the wealthy. Whether directed at business owners or not, any disparaging remarks made about the “top one percent” – people who earned more than $344,000 in 2009 – are negative statements about them. IRS data reveal that the majority of the “top one percent” has a partnership or S-Corp.

Source: Created from data from the IRS Statistics of Income

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.