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Power and Poverty: why does America have such a drastic wealth divide?



 What is wealth inequality? Wealth inequality refers to the difference in assets that the richest families have amassed over time compared to the poorest. This does not mean income inequality, which is only the amount of money that one is generating. It is important to note that wealth inequality is so ingrained in our society, that it extends much deeper and is more complex than the reasons that I have provided. However, these reasons do give a macroscopic view of the problem as I try to encompass as much as I can.

The core of the problem…

 The classist divides in this country and this problem can be rooted in one telling statistic: today the top 1% of the United States’ population owns 40% of the nation’s assets (Wolff). How were the elite in American society able to consolidate their wealth so effectively that it formed such a large wealth disparity? And how is the wealth gap still rapidly increasing? Check out this video for some more context on American wealth inequality

courtesy of politizane

The origins…

Drastic wealth inequality started in the U.S. primarily in the Gilded Age (1877-1905). The Gilded Age was “a party, but also a paradox”(Rothman 1). It was a period characterized by “the flaunting of wealth”(Rothman 2) but also a deep economic disparity between two distinct classes: the ones who worked, and those they worked for. By the decline of the Gilded Age in 1897, the top 4,000 families controlled more assets than the other 11.6 million(Rothman 2). With numerous advances in technology in the Gilded Age came the rise of numerous trusts and monopolies. This was aided by the embrace of laissez-faire capitalism by the United States. The lifeblood of Gilded Age monopolies was political corruption. Stanford Professor Emeritus of history Richard White said that the Gilded Age was the most corrupt era in U.S. politics because “the rise of corporations… intensified the ways that corruption can work” (White). Although the corruption did not directly impact the wealth inequality of the time, it played a major role in preserving the status quo and keeping monopolies in power. Monopolistic strongholds on American politics allowed corporations to operate with no regard for the livelihood of their employees.

read more in depth about Gilded Age inequality

How is wealth still so unequal?

Nowadays, the top 1 percent of Americans own 40 percent of the nation’s wealth and the wealthiest  0.1 percent own 23%. After decades of progressivism in the 20th century, how have we returned to wealth inequality on the same level as the Gilded Age? Modern wealth inequality is primarily a result of less obvious reasons, like exploitable federal policy, especially tax legislation, and unequal public services.

Right-to-Work

Right-to-work refers to labor laws that prohibit labor unions from requiring membership from workers (Shermer).The importance of labor unions was made apparent during the aforementioned Gilded Age. The Right-to-work laws are effective in reducing union membership. Membership has halved since 1983 (BLS). Membership was actually on the rise in the mid-2000s, until a band of midwestern states adopted Right-to-work policies in 2010, and unions lost 23% of their members in the ensuing decade (BLS). Nowadays, collective bargaining is futile(Orser Jr.).

Home Ownership and Inheritance

California’s inheritance laws are a great example. Typically, when a home changes owners, the annual property tax is set in accordance to the date of purchase. However, when a home is inherited by the owner’s children or grandchildren, they only are required to pay the property tax that the parents had to pay (Uhler). This helps families who have accumulated assets over generations, as their property taxes are lower than recent home-buyers. Buying a house is an investment, not only in the house itself, but in the family that inhabits it. Children of homeowners are more than twice as likely to graduate college and earn twice the income of a child raised in a rented home (Habitat for Humanity). In short, the lower taxes paid by heirs gives them a disproportionate advantage over first-time home buyers.

Tax Legislation

Tax legislation has long been filled with loopholes, deepening American wealth inequality. In the 1950’s, supposedly when the rich were being most taxed in proportion to their wealth, they only paid effectively 17% of it (Greenberg). Empirical proof of this tax avoidance is evident, as when taxes are increased, reported income also decreases (Saez). As an example, President Trump’s 2017 tax legislation was a complex mess of regulations that slashed taxes for the wealthiest Americans (Steverman). According to Columnist David Leonhardt, “taxes that hit the wealthiest the hardest…have plummeted, while tax avoidance has become more common”(Leonhardt).

Public Subsidies

Since education is so important in determining later success in life (Bassetti), schooling is an important advantage for the upper class. By giving a standardized education to all, public education is intended to equal the playing field between classes. Kids attending public schools in urban communities are allocated more than 2,000 dollars less per capita than those who attend suburban public schools nationally (Bellan). Suburban communities can invest more capital into schools, giving suburban children a better education than their urban counterparts.

Vice-president of human services for the Urban Institute, Signe-Mary McKernan writes that “about two-thirds of homeownership tax subsidies and retirement subsidies go to the top 20 percent of taxpayers, as measured by income. The bottom 20 percent, meanwhile, receive less than 1 percent of these subsidies… Low-income families benefit from safety net programs, such as food and cash assistance, but most of these programs focus on income—keeping families afloat today—and do not encourage wealth-building and economic mobility in the long run” (McKernan et al.).

What your government can do…

Notably, former presidential candidate Elizabeth Warren based her policies off of Award-winning economists Emmanuel Saez and Garbriel Zucman; they laid out 3 easy policies for the federal government to adopt. 

  • Wealth tax. People will pay a 2 cent tax on every dollar above 50 million of net worth (Warren). 
  • 25 percent tax on all business conducted outside of the United States. 
  • 60 percent income tax on the top 400 earners. 

These taxes alone would generate an additional 750 billion dollars for the federal government to invest in education, or medicine, or subsidies for the poor (Leonhardt).

What you can do…

Most of the solutions for these problems are out of your scope of reality, but the greatness of American democracy lies in the fact that each American gets a say in the actions of their country. I urge you to vote for public officials who support these solutions. But most importantly, I urge you to keep thinking about wealth inequality, because the longer it is in the American consciousness, the more time we have to find organizations, policies, and people who are willing to fix it.

read more on the current problem and solutions

works consulted

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COMMENTS: 4
  1. April 23, 2020 by Michael Brennan

    cool

  2. April 23, 2020 by Nick

    Are there other countries that have seen a similar wealth divide to the US?

  3. April 24, 2020 by Allie

    This is a really interesting topic! Do you think wealth inequality will decrease in the future? Does wealth equate to power, and will that prevent progress?

  4. April 25, 2020 by John Alan A.

    This is a great topic that can be a conversation piece.

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