The Value of Closely Held Business Accounts for a Declining Share of Americans’ Wealth

Using data from estate and other taxes, statisticians at the IRS estimate the distribution of Americans’ net worth across different categories of assets.  If we put together their estimates over time, we can see how this distribution changed from 1989 to 2004.   (Unfortunately, IRS data tend to be old by the time they are released, and the latest available data are from 2004.)

If we look at the most wealthy Americans – those with a net worth of $10 million or more – the IRS data show that back in 1989, closely held stock and ownership of non-corporate business assets accounted for 33.9 percent of net worth.  By 2004, that share was down to 24.1 percent.

The patterns are similar for the next wealthiest group of people – those with a net worth of between $5 and $10 million.  In 1989, 25.2 percent of the net worth of people with this level of wealth was accounted for by closely held stock and ownership of non-corporate business assets.  By 2004, the share had shrunk to 16.9 percent. 

In fact, over the 15 years from the end of the 1980s through the mid-2000, the percentage of net worth in these business ownership categories was also reduced for every other category worth.

Of course, we don’t know what happened to this pattern as a result of the recent financial crisis.  And we won’t have the IRS data to figure that out for a few years.

Moreover, I’m not sure we should worry about this trend.  Maybe people who own businesses have become better at diversifying their wealth, so less of it takes the form of shares in closely held companies and other small business assets. 

But to understand the behavior of entrepreneurs, it’s useful to know that the share of wealth that takes the form of closely held stock and non-corporate business assets has been going down, not up, over time.

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