The Institute for Policy Studies (IPS) published a white paper titled Billionaire Bonanza: The Forbes 400 and the Rest of Us. The IPS is a multi-issue think tank that has been conducting research on inequality for more than 20 years. The key takeaway from their study is that policymakers should be much more concerned with the question of how we might reverse extreme wealth concentration. The implications of not doing so could be momentous.
The demonstrated effects of income inequality include the suppression of economic growth; increased crime rates; and loss of faith in our supposed system of democratic meritocracy. The extreme concentration of wealth that exists today is largely the result of the mind-boggling income inequality that has taken root over the past 70 years.
Trends of extreme wealth concentration
Unemployment is down to a 17-year low. But for many people, the unbelievable growth in the stock market means nothing. According to a Pew report, the average hourly wage for Americans was $20.67 in 2014. Adjusted for inflation, that was just a measly $1.49 higher than in 1964.
In 1982, an American needed $75 million to enter the Forbes 400 list. But by 2017, the minimum wealth necessary to make the list was $2 billion. The wealthiest 1 percent of all U.S. households now own over 40 percent of all private wealth.
Meanwhile, more than 60 percent of Americans don’t have enough savings to cover a $500 emergency. And one in five U.S households, over 19 percent, have zero or negative net worth.
The elite ranks of our billionaire class
continue to pull apart from the rest of us.
We have not witnessed such extreme
levels of concentrated wealth and power
since the first Gilded Age a century ago.
Institute for Policy Studies
In 1916, lawmakers established the estate tax in response to the staggering inequalities of America’s first Gilded Age. The recent repeal of the estate tax hearkens the burgeoning of a new Gilded Age.
According to Robert Reich in The Rebirth of Social Darwinism, the Gilded Age “was an era when robber barons . . . controlled much of American industry; the gap between rich and poor had turned into a chasm; urban slums festered; children worked long hours in factories; women couldn’t vote and black Americans were subject to Jim Crow; and the lackeys of rich literally deposited sacks of money on desks of pliant legislators.” Do we really want to a modern-day equivalent of those times?
Race and extreme wealth concentration
All the top 25 members of the Forbes 400 are white.
Over 30 percent of black households and 27 percent of Latino households have zero or negative net worth to fall back on. That’s about twice as likely to be underwater as white families. While white households make up 65 percent of the U.S. population, they own nearly 90 percent of all wealth in the United States. White median household wealth now runs 35 times greater than median black household wealth and 25 times greater than Latino.
Only two African-Americans,
Oprah Winfrey (#264 with $3 billion)
and tech investor Robert Smith
(#226 with $3.3 billion), currently
reside within the Forbes 400.
Institute for Policy Studies
Homeownership plays a big part in median income and net worth. As of June 2017, nearly 72 percent of white Americans were homeowners, while just 42 percent of African-Americans owned their own homes. Only 45.5 percent of Latinos owned their own homes.
This is a down home issue for Lee Legal. The Washington, D.C. area is not immune to the effects of income inequality and extreme wealth concentration. DC’s lowest-income residents are overwhelmingly people of color, and nearly half were born in DC.
The richest fifth of DC households
have incomes that are 30 times higher
than the poorest fifth,
and the richest families in DC’s suburbs
have incomes 10 to 14 times higher
than the poorest families there.
A City Breaking Apart,
DC Fiscal Policy Institute
Tax cuts for the wealthy accelerates wealth concentration
In 1897, the richest 4,000 families in the U.S. (representing less than 1 percent of the population) owned as much wealth as the rest of the population. Today, the three wealthiest people in the United States — Bill Gates, Jeff Bezos, and Warren Buffett — own more wealth than the entire bottom half of the American population combined. That’s a total of 160 million people, or 63 million households. Taken to its absurd extreme, one day just one or two families will own all of American wealth.
The trend is unsustainable. So how do we reverse extreme wealth concentration? How do we rebalance our deeply unbalanced economy?
Our current economic imbalances
reflect . . . unfair economic policies
that benefit those at the top
at the expense of those at the bottom.
Institute for Policy Studies
Bluntly stated, tax cuts for the wealthy just make things worse. The average American family may be able to pay for their annual Costco membership with their newfound tax windfall. But the two Koch brothers stand to make $1.4 billion from the cuts — and they only had to spend $20 million to lobby for it. And Warren Buffett’s Berkshire Hathaway netted a $29 billion windfall from the tax legislation signed by President Trump. Tax cuts for the wealthy exacerbate wealth concentration.
How do we reverse extreme wealth concentration?
The IPS notes that tax policies routinely favor capital income over wage income, which “disproportionately benefits . . . those working in finance.” Between 1992 and 2012, the 400 highest-earning taxpayers in the U.S. saw their effective income tax rates decline from 27 percent to under17 percent. Generally, Americans say they like equality. But they become much less committed to the ideal as they move up the income ladder.
For instance, take the mortgage interest deduction, which annually costs the federal government $72 billion in lost tax revenue. White families receive a far greater share of the mortgage interest benefit because they own more expensive homes. White families also own their homes at a much higher percentage than other ethnicities.
We should seek to reduce the nearly risible modern concentration of wealth. Without policy intervention, wealth inequity will continue to widen, and indeed even accelerate. Only by appropriately taxing the nation’s wealthiest households can we invest in broader wealth-building opportunities across the economy.