The Millionaire Next Door

High Income Super Bowl: Business Owners, 63; Hedge Fund Mgrs & Lawyers, 9

Senator Harry Reid of Nevada recently stated:

Only a tiny fraction of people making more than a million dollars [a year], probably less than 1 percent, are small business owners.  And only a tiny fraction of that tiny fraction are traditional job creators.

Most of these businesses are hedge fund managers or wealthy lawyers.  They don’t do much hiring and they don’t need tax breaks.

Many Americans share Mr. Reid’s views.  And if you did a content analysis of the news headlines over the past few years, you might get the impression that investment types, especially hedge fund managers and lawyers who win multimillion dollar suits, are the only ones making big incomes.  But my analysis suggests that these categories of seven figure income producers even combined account for a small minority of high income generators. 

About 10% of those who have an annual realized income of $1M or more are retired.  Within the 90% who are employed, 47.1% nationwide indicate that they are self employed as business owners/entrepreneurs.  More than 3 in 10 (31.6%) report being “a senior executive.”  One-half of these senior executives (15.8%) is essentially working for their own private corporation, albeit not necessarily mom and pop operations.  In total then, it may be that as many as 62.9% of high income generators are in fact owners/managers of their own businesses.

And just who are these high income producing business owners?  Many of these types of businesses are listed among those in Appendices 2 and 3, for example, in The Millionaire Mind.  Certainly finance types are represented.  But there are a lot more business owners/job producers involved in manufacturing, designing, distributing, and selling than in finance. 

I estimate that lawyers account for about 7% of the million dollar producers.  That’s certainly more than the expected proportion given their population in the workforce overall.  Managers of hedge funds make up an even smaller minority of million dollar producers.   What if every investment guru who ran a hedge fund had a 7 figure income?   Still, they would account for less than 3% of the high income producing segment.

Read beyond the headlines. It is very easy even for well educated people to be conditioned by what’s in the press.  It is more provocative and audience enhancing to report on the statistical freaks such as hedge fund managers instead of the rank and file highly productive business owners. Where are the stories about the forest farmer who netted over $3M [a good year for timber sales] or the owner of an auction/appraisal company that specializes in selling distressed real estate?

2 thoughts on “High Income Super Bowl: Business Owners, 63; Hedge Fund Mgrs & Lawyers, 9”

  1. I actually recall reading up on this on politi-fact recently. What they actually found was that many of the wealthier ‘small business owners’ in the $1mm+ range, don’t actually derive a majority of their income from the business. It’s more along the lines of a lawyer may also own some rentals, do some consulting, or heck even sell on ebay, and thus file taxes as a business S-corp. So the amount their business generates is really just a fraction of what their ‘real’ or W-2 wage job gets them. Add to that that even if a good deal of income comes from side jobs, things like freelancing are more of a job-filling role rather than a job creating one.

    The stat put out was only 25% of the top 1% make more than half their income from their small business ventures. So still more than Mr. Reid’s supposed 1% figure, but not really a majority either.

  2. Dr. Stanley, I find your research very fascinating. I was introduced to you when listening to Dave Ramsey. I read your book The Millionaire Next Door and loved it. I agree with your post that the headlines in the news do not give the full information that is needed to make an informed conclusion about what is really going on. Keep up the good work.

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