"Congress is loaded," declared Andrew Katz in a post for Time magazine's blog. (1) Time was not alone in its assessment. Responding to a report from the Center for Responsive Politics that found, for the first time in 2012, a majority of members of Congress were millionaires, (2) news outlets from National Public Radio, (3) to Reason magazine, (4) to the Washington Times, (5) and everything in between ran headlines announcing the finding that at least 268 members of Congress, a little more than half of the body, exceeded the million-dollar mark based on their 2012 disclosure statements. (6)
For some, the news did not come as a shock. Various sources had previously noted academic work suggesting that members of Congress may have plenty of opportunities to enrich them selves at work. (7) Hoover Institute Fellow Peter Schweizer published a New York Times bestseller in 2011 that catalogued the dozens of ways Congressional members fill their pockets in ways that, while unseemly, are by and large legal and downright common practice. (8)
Others, however, largely attributed the high number of millionaires on Capitol Hill to selection effects. Basically, the claim goes, richer people get elected to Congress because it is so costly to run for election and because those who win elections tend to be especially talented people. "Campaigns have become so taxing we elect millionaires," according to Craig Holman of Public Citizen. (9) "You can't run for Congress unless you have some money stocked away," explained Stephen Fuller, a public policy professor at George Mason University. (10) The congressional salary is "pretty good money, but ... actually less than what many members would be making in a position of similar prestige and responsibility in the private sector." (11)
While it may be true that those in Congress are selected on characteristics that are at least related to wealth or income producing ability, in this Article, I present results that are difficult to square with the growing wealth of members of Congress being an artifact of selection effects alone. I show, using data from the required Congressional disclosures, that even when one conditions on higher levels of baseline wealth for members of the House of Representatives, those members still accrue relatively large rates of return on their wealth while they serve in Congress. Further, while it may be possible that, among their talents, these individuals are simply particularly good at managing their financial portfolios or happen to be married to individuals who are particularly adept at amassing wealth, if I compare Representatives' rates of returns to the upper echelon of wealth holders in the United States generally, the Representatives substantially outpace other very wealthy people. Presumably, the non-member wealthy also are quite talented financially and, yet, the average wealth of representatives grew over the 2004-2014 period in real terms at a rate almost 7 times that of the 95th percentile of US wealth holders. Over an average 9-year career for a Representative, (12) this translates to an average Representative having about 25% more wealth than the average U.S. resident who started the 9-year period in the same wealth cohort as the Representative.
While this study cannot determine the specific sources of these extraordinary returns, much less isolate causality, these descriptive findings are quite striking. Further, as discussed below, given the large leeway Representatives have in their financial disclosures, and the presumptive incentive to understate financial gains rather than overstate them, it is possible even these gaudy return numbers might understate the growth of Congressional wealth during the time period studied.
As shown below, the basic finding is largely invariant to party. Republicans start out wealthier on average, but Democrats enjoy slightly better appreciation of their wealth. I also do not find strong differences based on which committees the Representatives serve. Interestingly, I do not find similar growth among the even wealthier members of the Senate.
In the Sections that follow, I first discuss the source of the data including some background and details regarding the Congressional disclosure rules in Section I. In Section II, I analyze the change in wealth in both the House and the Senate during the period 2004-2014. Section III provides a comparison of the congressional results with the evolution of wealth at the top end of the U.S. distribution during the same time period. Section IV offers some concerns about the accuracy of the disclosure data, suggesting that the foregoing results may be understated, and Section V concludes.
THE DISCLOSURE OF CONGRESSIONAL WEALTH
The disclosure of the financial condition of legislators is viewed as an important check on government corruption and self-dealing, as well as a necessary condition to ensure transparency and good government in general. The World Bank reports that 78% of countries covered in its database require public officials to regularly disclose their assets and liabilities, and 91% of those with disclosure rules cover their legislatures. However, only 43% of the countries make this information available to the general public. (13)
The congressional wealth data in this article come from the Center for Responsive Politics website Open Secrets. Annual income and wealth disclosures are required under Title I of the Ethics in Government Act of 1978 (14) for members of Congress, as well as various congressional staffers, candidates for elected federal positions, Supreme Court Justices, and various individuals in the executive branch, including cabinet members, as well as the President and Vice President. (15) House members must file their disclosures with the Clerk of the House of Representatives, (16) and Senators must file with the Secretary of the Senate: Office of Public Records. (17) Annual disclosures must be filed by May 15; failure to file on time results in a late filing fee of $200, (18) although extensions are available on a discretionary basis from the relevant ethics committee. (19)
For both the Senate and the House, members must report any source of earned income where the aggregate payment is greater than $200. (20) The source of spousal earned income above $1000 must be disclosed but the amount is not required. (21) Members of Congress also need not declare their congressional salaries, (22) as well as income from a handful of other sources, such as government retirement benefits or social security proceeds. (23)
In terms of assets, members must disclose the value of any asset whose value exceeded $1,000 (24) or generated income greater than $200 in the course of the year. (25) For example, reportable assets include real property, non-federal retirement accounts and pensions, various financial assets, collectibles, and intellectual property. (26) Valuations are to be based on good faith estimates of the fair market value of the asset at the close of the disclosure period. (27) Various assets are excluded from the disclosure requirement, including "real property not held for investment purposes.... non-interest-bearing [bank] accounts, ... [and] [p]ersonal property ...," (28) Additionally, in both chambers, assets held in a "qualified blind trust" (29) or "excepted trust" need not be disclosed. (30) Such trusts must meet various conditions, including that they were not established by the member or his or her spouse, and that the specific holdings of the trust are unknown to the member and the member's spouse. (31)
In addition to the member's and member's spouse's assets, liabilities owed by the member, the member's spouse, the member's dependent children that exceed $10,000 at any point during the year must be disclosed. (32) Both chambers have a number of exclusions. For example, while House members must disclose mortgages secured by their personal residence if the mortgage exceeds $10,000, Senators are not required to disclose such mortgages. (33)
Although these income and wealth disclosures are meant to create a transparent picture of a members' financial position, clearly the exclusions have the potential to impede any attempt to get an accurate and relevant picture of an elected official's financial position. For example, for the median American, the primary residence makes up a large fraction of total wealth, (34) but is omitted from mandated disclosures entirely.
To make matters worse, the disclosures use very broad ranges for the valuations of assets and income. For example, in House member Darrell Issa's 2015 disclosure, (35) the first three assets listed in Schedule A are real property where the valuations provided are $500,001-$1,000,000, $5,000,001-$25,000,000, and $1,000,001-$5,000,000. (36) Additionally, he lists a number of financial assets as being valued at $25,000,001-$50,000,000, and some others valued at $50,000,000-plus (which is the top category provided in the disclosures). (37) The valuation categories for spousal assets top out at $l,000,000-plus. (38) The ranges for the valuation of liabilities are similarly broad (39) and, therefore, of limited value.
Such wide valuation ranges make it virtually impossible to know a member's net worth with any real precision, even under the best possible circumstances. However, there is suggestive evidence that there are significant errors in many of the disclosures. For example, an article in Roll Call suggests that initial congressional financial disclosures have about a 25% error rate, as indicated by subsequent amendments. (40) Although the Ethics in Government Act allows for financial penalties (up to $50,000) and the potential for prison time (up to one year) for falsifying the information in the disclosures (41) and the False Statements Accountability Act of 1996 also provides for fines and up to a five year prison term, (42) it is not clear that the disclosures...