Economic inequality entered widespread discourse in the U.S. in 2011, propelled by “Occupy Wall Street.” Attention has risen meteorically since then while the scope of the issue has broadened.
Initially the discussion centered on income inequality — the stark and widening gap between wages and earnings of the top 1 percent of U.S. households and everyone else. Among the many formulations, this one stood out:
Since 1980, the U.S. economy has transferred eight points of national income from the bottom 50 percent of households to the top 1 percent: the share of income going to the bottom 50 percent fell to 13 percent from 21 percent while the share accruing to the top 1 percent grew from 11 percent to more than 20 percent, according to a Chicago Tribune story summarizing the 2018 World Inequality Report. (See graphic at left.)
Stage two in inequality discourse was wealth inequality — the appropriation by the super-rich of U.S. assets: bank accounts, stock funds, bonds, partnerships and other financial assets, along with real property — houses, land, real estate, art and so forth.
Again using 1980 as a baseline, total wealth held by the top 1 percent of U.S. families has snowballed, as the graphic at right shows, increasing more than 6-fold to 2018, from $5 trillion to $33 trillion. At the same time, holdings of the bottom 50 percent of households inched upward by just $100 billion — from $400 billion to $500 billion. (Figures are in 2018 dollars.) The wealth of the top 1 percent now dwarfs that of the entire bottom 50 percent by a factor of 66. This makes for a per-household disparity of 3,300 (since 66 x 50 = 3,300).
Using 2019 data, Allianz Research reported calculating a U.S. wealth inequality “Gini coefficient” of 0.81. (The Gini Coefficient is a measure of population inequality ranging from zero to one; a completely equal distribution — all households have the same income or, in this case, wealth — gives 0, while a completely unequal distribution — all wealth is held by a single household — gives 1.)
A Gini figure of 0.81 indicates that the United States today is four times closer to having one family own all of its wealth than to having the same wealth equally distributed among all. (See Allianz Global Wealth Report 2020, Sept 2020, p. 25.) The Covid-19 recession has almost certainly sharpened this division, as the New York Times’ Farhad Manjoo pointed out in his Nov. 25, 2020 column, Even in a Pandemic, Billionaires are Winning. Citing calculations by Chuck Collins at the Institute for Policy Studies, Manjoo reported that from March 18, when most of the U.S. economy was entering its Covid lockdown, to Nov. 24, the combined worth of America’s billionaires grew from $2.95 trillion to nearly $4 trillion, an increase of one-third.
The increase was driven by a soaring stock market (itself propelled by the Republican 2018 tax cuts on extreme wealth) and increasing returns to digital monopolists such as Amazon’s Jeff Bezos and Zoom’s Eric Yuan. Meanwhile, the ranks of the unemployed swelled with laid-off workers, many of them facing hunger and homelessness as the Republican-led Senate blocked a re-up of the federal cash grants issued earlier in the pandemic.
The third and current “frontier” in the inequality discussion, and perhaps the most salient one for climate policy, is tax inequality, encompassing the precipitous decline since 1980 in taxes paid by the wealthiest Americans relative to their incomes … and the rise in tax payments by ordinary households relative to their incomes.
The graphic below differs from the prior two in that the wealthy are represented by the 400 richest Americans — a far more rarified stratum than the roughly 1.3 million households that constitute the 1 percent depicted in the other graphs. It also reaches back to 1960 rather than 1980 to demonstrate that the share of pre-tax income that the super-wealthy are paying in taxes has fallen from 57-58 percent in 1960 to 23 percent, while taxes paid by the bottom half of Americans now (in 2018) have risen to 24 percent of their income.
“For the first time,” report U-C Berkeley economics professors Emmanuel Saez and Gabriel Zucman, in 2018 “billionaires paid lower tax rates than the working class,” which is how Saez and Zucman characterize the bottom 50 percent of U.S. households. This is no Warren-Buffet-is-taxed-less-than-his-secretary unicorn but a comprehensive finding based on exhaustive quantification of every type of tax to which Americans are subject: federal income taxes, state income taxes, state sales taxes, payroll taxes, property taxes, estate taxes, and excise taxes on gasoline, alcoholic beverages and imported goods (tariffs).
Over the course of 2019, Saez and Zucman helped put tax inequality on the political map by assisting Sen. Elizabeth Warren and, later, Sen. Bernie Sanders in formulating their plans to levy taxes on “extreme wealth.” The Warren plan would have taxed household wealth above $50 million at annual rates of 2 percent (Warren called this her “2 cent” tax), rising to 3 percent on wealth in excess of $100 million. Sanders would similarly have taxed wealth above $32 million — a level enjoyed by the top 0.1 percent (1/10 of 1 percent) of U.S. households — at 2 percent, with the rate rising progressively until reaching 8 percent for household wealth exceeding $1 billion.
It doesn’t take a degree in economics to see why tax inequality has skyrocketed along with wealth inequality for a half-century, and especially since around 2000. The marked reduction in tax rates has allowed wealthy Americans to hold on to increased shares of their income and thus to amass ever-larger piles of wealth.
At the same time, the super-wealthy have invested some of their increased holdings in anti-tax think tanks, media, campaign contributions and lobbying that have steadily chipped away not just at tax rates themselves (on corporate taxes, capital gains taxes and estate taxes) but at the very conception of taxes and government as expressions and agents of the common good. A key development, as Saez and Zucman reported in their 2019 book, The Triumph of Injustice, has been the emergence of a full-fledged tax-avoidance industry dedicated to enabling rich households to reduce the exposure of their income to even the lowered rates specified in the U.S. tax code.
“It is as if a century of fiscal history has been erased,” Saez and Zucman wrote. “The wealthy have seen their taxes rolled back to levels last seen in the 1910s, when the government was only a quarter of the size it is today.” Especially since 1980, they added, “the tax system has enriched the winners in the market economy” — particularly globalization, financialization, communications and digital tech — “and impoverished those who realized few rewards from economic growth.”
While these trends are powerful, they aren’t inevitable. “The history of taxation,” Saez and Zucman reported, “is full of U-turns.” We at Carbon Tax Center want to help American society execute a full U-turn toward tax equality. We hope to conceptualize and map a plan to tax extreme wealth and invest the proceeds in a Green New Deal of low- and eventually zero-carbon infrastructure based on 100% renewable power and conversion of all transport, heating and cooling and industry to electricity.
Don’t miss Saez and Zucman’s Web site, TaxJusticeNow, which not only includes the charts presented here (and many others) but allows viewers to input their own tax plans and see outcomes including revenue streams and reductions in the wealth of Bezos, Zuckerman and other prominent billionaires.
Note: As much as we admire and rely on the work of Saez and Zucman, they are far from the only sources quantifying and documenting U.S. economic inequality. The invaluable Center on Budget and Policy Priorities publishes and updates a useful Guide to Statistics on Historical Trends in Income Inequality. The Web site Income Inequality cuts a very wide swath that we are just beginning to explore. See also a post in Vox by Dylan Matthews in August 2019, You’re not imagining it: the rich really are hoarding economic growth, that considered various “technical” objections to the Saez and Zucman work (e.g., deflating income growth by the Consumer Price Index unfairly flattened lower-income families’ real income gains) and Saez-Zucman’s counterarguments.
Note: You can read more about Saez and Zucman in the New York Times’ Feb. 20, 2020 profile, The Liberal Economists Behind the Wealth Tax Debate.