Massive wealth inequality is finally getting well-deserved policy attention.
Sen. Elizabeth Warren (D-MA) has proposed a wealth tax on multimillionaires and billionaires. This proposal aims to shrink the gap between the have-a-lots and have-nots and to fund programs that middle-class families need. This proposal is long overdue.
Wealth – the difference between what people own such as a house, retirement account and business and what they owe – has increasingly become concentrated at the very top. The top 0.1% of the wealthiest Americans, for example, had at least $36.3 million (in 2016 dollars) in wealth from 2010 to 2016, up from $31.2 million from 2001 to 2007. As a result, a growing share of total wealth has become concentrated among the wealthiest few.
In fact, wealth is a lot more concentrated than income. By 2016, the richest 10% of American families owned 69.1% of all wealth in the country. This is the highest level recorded in three decades of Federal Reserve data. In comparison, the richest 10% of Americans received less than 50% of all income that year.
The concentration of wealth has largely followed in the path of the stock market. The wealthiest have managed to extract more and more money for themselves by keeping wages down, by using novel investment strategies not available to the less wealthy and by legally manipulating stock prices, for instance, through share repurchases.
Yet concentrated wealth has done little for the economy. Over much of the past two decades, as wealth became more and more concentrated, business investment and economic growth have been modest. Productivity growth has also been middling. Concentrating more money in the hands of fewer people has not translated into a stronger economy.
Worse, the growing concentration of wealth has hollowed out America’s middle class. A lot of middle-income families have little wealth after years and decades with slow or no wage growth. Wealth serves several key purposes. It helps families to pay their bills in an emergency. It is also a way for them to get ahead by starting a business, moving to a new job when better opportunities arise, and send children to college. It is also a pathway to a secure middle-class retirement since Social Security provides a universal, but basic benefit in retirement. The lack of wealth then leaves much of the middle-class vulnerable to an economic emergency as the recent government shutdown showed. Middle-class families will also enjoy less economic mobility over time – children born today have fewer chances to be better off than their parents than in the past – and many face dim retirement prospects.
The challenge of too little wealth is especially pronounced among African-Americans, Latinx families and some parts of the Asian-American community. The median wealth for African-American families, for instance, was $13,301 (in 2016 dollars) from 2010 to 2016, the median wealth for Latinx families was $18,766, while the median wealth for white households was $128,445. Importantly, wealth among many communities of color has fallen compared to the years before the Great Recession from 2001 to 2007.
As wealth has become concentrated at the top, America’s families are struggling to get ahead. Sen. Warren proposal to tax the very wealthy is a very important and well-designed step to fix a system that is out of balance. Her proposal would impose a 2% tax on assets above $50,000,000 and a 3% tax on assets above $1 billion. The proposal would raise an estimated $2.75 trillion over a decade. This is much needed revenue to boost the key programs such as Social Security, Medicare and education that a weakened middle class increasingly relies on as its own savings often don’t go very far.
The fact that a high-profile politician has developed a serious proposal to combat massive wealth inequality is very welcome news. It broadens attention on the gaping gulf between the wealthy and America’s struggling middle class by not only talking about their current struggles but also by highlighting the obstacles families getting ahead. Sen. Warren’s proposal could make a real dent in the large wealth inequality that plagues our economy, while raising revenues to pay for important investments to strengthen the middle class.
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