One of my standing google alerts brought me to a page where this question was posed. I jumped in to answer it, and thought I’d share my answer here:

Answer #1: It is determined by what we tax and what we don’t; what we permit to be privatized, and what we socialize. When we permit the privatization of natural resources and the economic value of land, by collecting only small royalties and low taxes on land value, we permit individuals and corporate shareholders to privatize value which all of us create. Corporate stock ownership is quite concentrated, even though lots of people own a little each.

When we place taxes on buildings, and the sales of goods and sometimes services, we tax that which individuals and corporations create. Many would argue that this is unfair, and most economists would agree that we discourage production, innovation and job creation.

When we place taxes on wages, we socialize a part of that which individuals create. At the very highest income levels, where a significant portion of “wages” might actually be natural resource values, or urban land rent, or other kinds of privilege, we are – somewhat clumsily – collecting via an income tax that which ought to have been collected via taxes on land values and natural resource values. But it is a clumsy tool.

When we tax the very largest estates (we currently tax the estates of fewer than 1% of the people who die each year), we are collecting, once per generation, a percentage of the appreciation of land and natural resources (which hasn’t been taxed yet) – which is better than never collecting it at all but far inferior to collecting it annually – but we are also collecting some things which are genuinely the fruits of someone’s labor or brilliance.

Huge fortunes may be built on good ideas, but frequently they are built on urban land values, on natural resources (Jed Clampett) – or on privilege or monopoly of some kind. “Capital” doesn’t appreciate. As every homeowner knows, buildings depreciate, even with good maintenance. As every car owner knows, cars and other machinery depreciate, even with good maintenance. What appreciates is what is scarce or in finite supply: choice urban lots and nonrenewable natural resources that meet a consumer need. When we permit some of us to say “THIS IS MINE!” we determine wealth distribution. The rest of us pay the privileged folks for that upon which we rely to live. What a deal! Every young person must either pay rent or buy a piece of land on which to live, and much of our housing payment is for the location, not the structure; and on top of that we must pay interest. (Guess who benefits? Shareholders of lenders.)

You might be interested in the fact that the board game Monopoly is based on a game which was developed in the early 1900s to teach these ideas. It was called The Landlord’s Game, and it came with two sets of rules. One set was called the Prosperity rules, and it made for a rather dull game: no big winners, no abject losers. Not an exciting game, but a model for sustainable living, in which all could prosper. Needless to say, the board game Monopoly is based on the other set of rules.

Should life be based on Monopoly rules, or Prosperity rules? Answer #2: If your question was “how do we measure the distribution of wealth” then perhaps the best answer is via the Federal Reserve Board’s triennial Survey of Consumer Finances, last conducted in 2007. They survey households in great detail, and then report how wealth in total and of various kinds, and debt, are distributed. However, since their sample omits the Fortune 400, they under-report the concentration of wealth. See http://lvtfan.typepad.com/lvtfans_blog/2010/02/the-house-of-tranquillity-a-middle-class-agenda.html for a bit about wealth concentration, and look on that same page for more about the Survey of Consumer Finances (SCF).