EXPLORING HOW WEALTH INEQUALITY AFFECTS EVERY SPACE OF OUR POLITICAL AND SOCIAL WORLD
Basics of Wealth Inequality
This is a story about a nation separated by those who have and those who don’t, and though it doesn’t yet have a happy ending it could one day… but we’ll get to that later. First, you need to understand that if you are working forty hour weeks and don’t own three houses, you have not failed yourself or this country. It has failed you.
Over the past thirty odd years, a trend has emerged of corporate coddling and protection of wealth in the arms of the lucky and the few. There is absolutely no evidence to support that they have worked harder than you, just that they had the good fortune to be white and born into the elite opulence that came out of that category.
To be clear, this is not an attack on their luck but an argument for the freedoms that the rest deserve. In a world where success is increasingly decided by educational attainment and human capital, the government has an obligation to promote a system where everyone can succeed.
What Inequality Looks Like
Productivity and median income growth, 1948–2013
Source: www.stateofworkingamerica.org
There is an understanding in this country that incomes will grow over time as productivity and technology grow. This assumption is not unreasonable and yet something drastic happened in 1980 to cause an income landscape that looks drastically different from what we would like to believe. Now, people continue to work more productively than they did forty years ago, and yet haven't seen even a 10% increase in median income since 1996.
Change in average annual household income, by income group, 1979–2010
Source: Congressional Budget Office (2013)
Not only has productivity been out of sync with income growth, but the top income earners have been out of sync with the rest of the work force. The top 1% has always earned more, but the past forty years have seen them diverge from the rest by huge amounts. Even during tough times like the recession, their growth was more than the growth of the bottom 95% of Americans combined.
You may have heard a lot about income inequality lately, and that wouldn’t be surprising since it has recently become a big hot-button issue with politicians. To clarify, income inequality is defined by a phenomenon in which a disproportionate share of income is going to the upper class, while little is left over for the middle and lower classes. Unfortunately, politicians’ focus on this issue has been primary on the middle class and their woes. As troubling as their stagnation has been, this approach completely ignores the money hoarding going on from above.
This is not to say that income is a zero-sum game overall, but in the short term this is almost definitely true. Through the analyses on this page we will explore wealth distribution as an indicator of a new American value system that is not based on a meritocracy, but rather a system of extreme wealth accumulation in the hands of a few. Wealth is the key to this story. Wealth is the total accumulation of income over not just one lifetime, but those of your entire family, and signifies the biggest and most important opportunity for securing the American dream.
"Wealth taps not only contemporary resources but material assets that have historic origins. Private wealth thus captures inequality that is the product of the past, often passed down from generation to generation" - Black Wealth / White Wealth
As wealth is the accumulation of income over generations it not only has an easily accessible cause, but also a potentially simple solution. This will be discussed in further detail later, but as compared to income inequality, wealth is a much more straightforward way to represent the inequity that many Americans feel from day to day.
Wealth inequality is in discourse with a concept known as social inequality which involves patterned differences in social capital, command over resources, and living standards. Simply, this means that a person born into the upper classes will have an easier time at life. But, not only will it be easier for these lucky few, it will be almost impossible for those at the bottom to move up. This concept is known as social mobility, which strikes a chord in the heart of many Americans because of its direct contrast with living out the American Dream.
Source: www.vox.com
Why do we vote this way?
Why do we actively vote to keep inequality and race relations—at least as they relate to wealth—status quo? In Larry Bartels' book on income inequality entitled "Unequal Democracy" he describes the ways in which Americans decide who they will be voting for in the coming election. To understand the illogical ways we vote, it is firstly important to note the state of the economy.
Democrats v Republicans
Macroeconomic performance under Democratic and Republican Presidents, 1948-2005
Source: Bartels, L. M. (2009)
There is a phenomenon, not commonly noted, that Presidents who are Democrats tend to nurture more thriving economies than Republicans. If this is true (which the figure shows) then why would so many people vote Republican? We are not saying it is completely illogical for you to vote for them, just that so many people do, and that Republicans win so often. In his book on income inequality and its effects on democracy, Bartels demonstrates that the easiest answer might not be the best one. There is a common misconception that the Republican Party does a remarkable job at distracting voters from economic issues and swaying them with moral arguments and social policies. But this is not likely the case. The data shows that the more probable answer lies in the white poor and their perception not of their own economic fortune, but of the richer classes.
Voters
Bartels' book shows how this is possible. When poor voters are making decisions about the economy, they are more influenced by the fortunes of the rich than of their own. In fact, the success of the rich is about twice as influential in their decision-making during elections than their own success.
This isn’t helped by the fact that rich voters are generally more likely to vote against higher taxation and redistributive policies in general. In one study by Soroka and Wlezien on policy preferences, low income taxation was considered “about right” by 41.4% of wealthy voters, while high income voters were also five times as likely to be in favor of cutting welfare spending. These opinions would be understandable if not for the fact that wealthy people are, not surprisingly, the largest campaign contributors. So, the people with the largest voice in politics are also those who wish to keep the poor in their place.
Percentage of Dollars Given to Politics by Income Quintile, 1990
Source: Bartels, L. M. (2009)
So what does this say? Pessimistically, or realistically, these data paint a picture in which the upper class and white poor are similarly voting against redistributive policies and therefore the wellbeing of the poor. It represents a country where the needs of the upper class outweigh those of the others. In combination with race, though, this picture is much more troubling. In combination with race, this picture is one of a white upper class actively dampening the opportunities of a class of people that have been the target of unrelenting social and institutional discrimination.
Race
Wealth has dramatically increased for White Americans over the past thirty years and as fortunate as that increase has been, Black and Hispanic Americans have experienced comparatively low wealth increase. And it is not only growth that has been stunted for people of color in this country; as of 2010, Whites have on average over six times as much wealth as Blacks. As was previously mentioned, wealth is especially important because it very reliably determines future opportunity and success.
Median family income (in 2011 dollars), by race and ethnicity, 1947–2010
Source: www.stateofworkingamerica.org
Income is luckily slightly more optimistic for people of color, as income has grown at a slightly higher rate compared to Whites. But, as you can see, Blacks are still only experiencing less than two thirds as much as White income earners. At this rate, even if Whites accumulate no more wealth (net no money), and Blacks save 50 cents of every dollar they earn, it would be year 2047 before they reach wealth equality. This just further exemplifies how big of a factor wealth is in the fight towards racial equality.
When it comes to wealth and race, social mobility is a relatively important consideration. It is easy to just say that Blacks should save that 50 cents and claim their own equality, but things are never that straightforward. African Americans have been continually put at a disadvantage for opportunities to advance at the same rate as other citizens of this country. It is fairly obvious that Black citizens have had less time and opportunities to accumulate wealth, as their incomes have had a fairly short history (think slavery).
As for other opportunities for wealth accumulation, such as the tax code, institutional racism has played a huge role. For one, Blacks are much less likely to be homeowners and not for lack of income, but from disparate treatment from lenders. Originating from racist policies in the 1930s that marked entire Black neighborhoods as bad credit risks, discrimination persists even today. This alone makes valid at least a discussion of reparations. For another, since Blacks are much less likely to own homes, they do not receive the same benefits as homeowners when it comes to tax deductions tied to holding a mortgage and a house. Finally, Blacks tend to accrue most of their wealth through income rather than capital gains, and yet capital gains are generally taxed at about half the rate of income taxes. This creates a clear, though indirect, bias against African Americans.
Rhetoric
Constitutional
This term is thrown around over many things that are stated in the Constitution but that do not necessarily apply between ordinary citizens. Any constitutional right you have is a protection from the government, not other people.
Economy
Sometimes the most dangerous words to use are ones we don't understand. The economy is a three step system of production, consumption, and distribution of goods in a certain area, not an excuse to be irresponsible about other social and political issues.
Trickle-Down
This term is used as a metaphor in laissez-faire economics for what is expected to happen if the rich are left to themselves. Unfortunately this model is unrealistic, and without regulation that affects the rich, the less fortunate will be left out to dry.
One-Percent
Though it applies to the correct group of people, the top 1% of income-earners, this phrase is often used pejoratively to accuse those who are rich of being rich. Pointing fingers at a single group of people for the woes of a country is not always the best way to go.
Equality
Often confused with uniformity, this word is used to describe an ideal world that is unattainable. In reality, the word just represents a system in which people have equal opportunities to reach equal goals. If you are opposed to Affirmative Action listen out for "equality of outcome."
Socialism
Used as a synonym for communism, socialism operates as a way for people to put down government assistance. In reality, government assistance to the poor helps a lot of people while leaving the economy essentially untouched.
Redistribution
The technicalities of redistribution are complex and should be carefully considered, so using this policy as a cure-all won't be helping anyone. Neither using it in excess nor condemning it will make inequality go away.
Conservative/Liberal
These terms are often used to divide rather than bring similar-minded people together. It derives from a misunderstanding of political issues as belonging to only specific groups, rather than an issue that anyone could agree with.
Death-Tax
Another name for the estate tax that puts a conspicuously negative slant on a tax policy that affects less than .2% of people in this country. Yes, it affects the heirs of the deceased; no, it probably won't affect you.
This rhetoric grid is not a guide; it’s not even a suggestion on what to say. The main drive here is to raise the red flag on words that can be misused or misunderstood, so that we can at least be more sensitive when they are used in politics and media.
Solutions
Estate Tax
Source: www.levyinstitute.org
The estate tax, sometimes known as the death tax, is a surprising choice for national outrage and attention. As a tax that is taken out of inheritance, it affects only those in the very top of the wealth distribution, and even then they are already dead.
You see, the tax is composed of two main elements: tax exemption level and tax rate. The tax rate alone is very high, at 40% and this scares many Americans. But this is removed from the fact that only those who have $5.43 million or more are taxed at this level. And even then, only wealth above $5.43M is taxed at all (not to mention that married couples’ tax exemption rate is much higher at almost twice this rate).
If you anticipate making this much money and having children who will need every cent of it, then combatting this tax is the issue for you. But considering a vast majority of Americans do not fall into this category (only 4,000 people), lowering the tax exemption level to, say, $2 million isn’t such a big deal.
You should decide for yourself, which is why we made a graphic to help. If you move the sliders next to the pie chart, you will find what changing the estate tax exemption level and tax rates could do to the wealth distribution. Enjoy!
Capital Gains Tax
A capital gain is profit in the shape of income created by a stock, bond, or real estate that is sold for more than the original value. And though it is a form of income, for some a large share of their income, it is generally taxed at half the rate of regular income. The rationale for such a low tax rate was to encourage investment, creating jobs and stimulating the economy. This trickle down ideology worked for a time (until the recession), but historically there is no evidence to suggest that lower capital gains are tied to economic growth. In fact, most economic and tax policy institutes assert that capital gains should be taxed at the same rate as federal income taxes.
There also is a huge bias towards wealthy people since they are more likely to invest. Yes, capital gains taxes are marginal and dependent on income, but only the richest few are likely to partake in this tax break. The Tax Policy Center found that the average household in the middle of the income spectrum received $20 from the 2003 capital gains and dividend tax cuts while the average household earning over $1 million received $32,000, or 1,600 times as much.
Maybe, instead of continuing to cut part of an already inequitable tax code, we should consider changing the rate so it treats the poor as if they are just as important as the rich.
Education Reform
As great as taxes are to jump start change right now, programs will need to be put in place so that we can use that tax revenue for something good. In terms of reducing long-term inequality, education is one of our best choices for this kind of investment. For one, early childhood education is extremely biased towards those who have money—no surprise there. But also, preschool has been proven time and again to be one of the best indicators of future academic and occupational success. In a 2011 study, a one percentile increase in Tennessee kindergartners’ test scores equated to a $94 increase in wages at age 27 (controlling for family SES). Similarly, the graph to the right shows the difference between groups of children who received early childhood education and those who did not. Future educational goals were more frequently met, while teen pregnancy and smoking rates were considerably lower. So funding for preschool would not only combat inequality, but it is also probably the best educational measure we have in our arsenal.
Percentage difference between early childhood education outcomes and control group
Source: Campbell, F.A.(2002)
Wrap Up
1. There is a trend in this country towards a system of increasingly concentrated wealth at the top that has arisen out of historical and contemporary deregulation and inaction.
2. This wealth inequality has had a disproportionate affect on African Americans as the tax code is stacked against them even more than the average White.
3. There is language and rhetoric that confuse these ideas, but the more aware we are of their presence, the less effect they will have.
4. And there are solutions that would create a more equitable system, but we have to want them. We cannot stand behind the extremely wealthy and hope that their wealth will reach us one day.
