Defining extreme wealth is more complicated than it looks

Key takeaways

Policymakers across the United States are increasingly interested in defining the upper end of the U.S. income and wealth distribution so they can develop and effectively target tax policies.
Yet determining cut-offs for which households are in the top 1 percent and higher depends on the source of the data used, definitional differences, and methodological assumptions.
What this means for growth: There is strong evidence that targeted tax increases on wealthy households can improve federal and state fiscal conditions, combat inequality, and spur equitable growth, yet picking thresholds for income and wealth taxation is imprecise. Most proposals target very small slices of the U.S. population. How much revenue is generated and how the U.S. economy is impacted are both hard to predict and similarly imprecise.

Facing high levels of income and wealth inequality and shrinking tax revenues, U.S. policymakers are showing increased interest in proposals to tax the richest households. Yet determining which households fall into that category is complex and changes based on which data sources are used, which units of analysis are measured, and other methodological variances.

These distinctions shape which households a policy targets, how much revenue it raises, how researchers analyze its effectiveness, and how policymakers understand its impact. In short, they are not just fodder for academic debates but are essential to the policymaking process as well.