I’ve been having a running argument with Donald Trump supporters on social media. Is America poor? Rich? Somewhere in between?
Trump, the leading Republican presidential candidate, says the United States is poor, a claim I debunked in a recent story. But some readers don’t buy my argument – so I’m digging deeper into the numbers. The basic objection comes down to one thing: A nation can’t possibly be wealthy with a national debt of $19.3 trillion, or about $160,000 per U.S. household. If Washington had to pay that off all of a sudden, it couldn’t possibly come up with the money. And if you can’t pay your debts, you must be poor.
That logic might make sense for a family or even a business, but not necessarily for the U.S. economy as a whole. The U.S. government does, in fact, have a negative net worth. It has assets of more than $5 billion, including buildings, land, intellectual property, loans made to consumers, currency and many other things. But its liabilities are much bigger, due mostly to the national debt. On the whole, the government’s net worth is - $12.3 trillion, according to the latest data from the Federal Reserve.
America’s wealth has never resided in the government, however; it resides in the private sector, which is bursting with bounty. Households, businesses and nonprofits have a combined net worth of about $98 trillion, according to the Fed. This table shows the entire net worth of the United States, including all of the nation’s assets and liabilities, in every sector:
Bottom line: The total net worth of the U.S. is nearly $100 trillion, give or take a few trillion due to fluctuations in the stock market and other variations. Again, that accounts for all debt, both public and private, including the $19.3 trillion Washington owes. (A methodology note explaining each category is at the bottom of this story.)
So is $100 trillion of net worth a lot of wealth? Uh, yeah. It’s 165 times the value of Apple, the world's most valuable company, and 5.5 times America’s entire GDP, a portion that has risen sharply since the recession. Total net worth peaked at 5.7 times GDP in 2006, the final year of the housing boom. It bottomed out at 4.8 times GDP from 2009 through 2011, as home values fell, then turned upward in 2012 as both homes and stocks once again gained in value. Here’s the ratio of total net worth to GDP since 1960:
It’s difficult to do apples-to-apples comparisons with other countries, but the United States ranks as one of the world’s wealthiest countries almost any way you look at it. U.S. disposable income per household—what’s left of family income after taxes—is the highest in the world, and it’s multiples of what people earn in China and Mexico, the two bogeynations Trump frequently blames for killing American jobs. And the Organization for Economic Cooperation and Development ranks the United States fourth in terms of household net worth as a percentage of disposable income, after Great Britain, Belgium and the Netherlands. That's an important measure of wealth when you account for income.
There’s one huge caveat to all these rah-rah numbers: wealth in the United States is divided very unevenly, with the rich snagging a larger portion than in virtually every other advanced nation. The U.S. has a less generous safety net than many other countries as well. Many lower-earning Americans are undoubtedly struggling, while waiting for wealth stubbornly stuck at the top to trickle down, which may never happen. When Trump says America is poor, it resonates with a lot of people who feel that way.
But if the question is whether America has the resources to pay its current and future obligations — even in an emergency -- the answer is yes. It may not be possible under the current tax structure, which doesn’t raise enough money to cover what the government spends—especially with the economy growing at an anemic 2% or so. But the power to levy taxes is a remarkable tool, and it makes government finances quite different from the typical household budget.
Tax rates can and do go up, usually when there’s an urgent need for government revenue and other measures aren’t enough. The top tax rate soared from 25% before the Great Depression to 63% in the early 1930s, to 79% in the late 1930s, and to 91% during World War II. Today the top tax rate is 39.6%, and even lower for capital gains, which mostly accrue to the wealthy. Parting with some of that $100 trillion, if ever necessary, would surely be painful for those who own it. But ruinous, no.
[Methodology: Here’s some of the fine print on net worth astute readers will no doubt wonder about. The sector known as nonfinancial corporate business includes all U.S. for-profit public companies. The net worth number seems small because the market value of those companies—the stock—is mostly accounted for in the household category, under financial assets. Nonfinancial noncorporate business includes all privately owned U.S. companies. Financial business includes the banking sector, asset managers, insurance companies and other financial institutions, and its net worth is negative mainly because the loans and securities such firms issue count as liabilities, offsetting deposits and other assets. Rest of the world includes U.S. transactions by foreigners. And state and local government has a positive net worth because assets such as buildings, equipment, pension funds, and currency exceeds liabilities such as municipal debt and pension obligations. For those who want to know more, the Fed has published 47 pages of footnotes relating to these accounts.]
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.