Economic inequality began entering widespread discourse in the U.S. in 2011, propelled by the “Occupy” movement. Attention to it has risen meteorically while the scope of the issue has broadened considerably.
First to be discussed was income inequality — the stark and widening gap between annual wages and earnings of the top 1 or 1/100 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 aggressive 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 states, increasing to 2018 more than 6-fold, from $5 trillion to $33 trillion. At the same time, holdings of the bottom 50 percent of households inched upward by a measly $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).
Usign 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 is extraordinarily high, indicating that currently the United States 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 third and current “frontier” in the inequality discussion, and the most salient one not just for the 2020 election but potentially for climate policy as well, is tax inequality, encompassing the remarkable 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 precipitously 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 tax household wealth above $50 million at annual rates of 2 percent (Warren calls this her “2 cent” tax), rising to 3 percent on wealth in excess of $100 million. Sanders would similarly tax 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 report in their new book (available via this link to the publisher, not Amazon), 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,” write Saez and Zucman. “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 add, “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 report, “is full of U-turns.” We at Carbon Tax Center intend to help American society execute a full U-turn toward tax equality. Our part will be 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. An extremely useful post in Vox by Dylan Matthews in August 2019, You’re not imagining it: the rich really are hoarding economic growth, 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 counterarguments to those.
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.