Introduction Inequality in the United States is at its highest level in a half-century, according to the U.S. Census Bureau. The richest 0.1 percent of households owns between 15 and 20 percent of all U.S. wealth, while the bottom half owns just 1 percent. But this wealth gap is only one part of the problem, economists say. Inequality also extends to education, with the poor lagging the more affluent in academic achievement, and to regions, where high-tech centers are leaving behind areas dependent on agriculture or manufacturing. The coronavirus pandemic, meanwhile, is sending unemployment soaring and is widening the gulf between the haves and the have-nots. Conservatives and liberals agree that inequality exists, but differ sharply about what should be done. Democrats propose raising taxes on the rich, expanding health insurance for the poor and spending more on public education at all levels. But conservatives say inequality is a natural byproduct of a prosperous free-market economy and warn that wealth taxes would harm growth and ultimately hurt workers. Randall Grey holds a sign during a 2011 protest in San Diego against Wall Street and corporate power. Income inequality has increased in the past decade, according to government agencies and economists. (Getty Images/Corbis/Sandy Huffaker) | Go to top Overview Multibillionaire Kenneth Griffin lives in Chicago, where he owns a $59 million penthouse as well as two floors of hotel rooms that he bought for $30 million. The founder and CEO of the Citadel hedge fund — who, Forbes magazine estimated, was worth nearly $13 billion before the coronavirus pandemic hit — also stays at his $238 million penthouse in Manhattan, his $60 million condominium in Miami, his $122 million mansion in London and his multiple Palm Beach estates said to be worth at least $350 million. Needless to say, Griffin — who also owns homes in Colorado and Hawaii — does not have trouble finding a place to lay his head. Like Griffin, Cokethia Goodman works full time — but as a home health aide for $9 an hour. She and her six children were evicted from their rental home as Atlanta's Peoplestown neighborhood gentrified. Their next home was condemned shortly after they moved in. They eventually moved into a cramped apartment with reluctant relatives. Chicago's Gold Coast along Lake Shore Drive is home to some of the city's wealthiest residents. They coexist with a homeless population of about 86,000 people. (Getty Images/Jeff Schear) | Because Goodman is employed, has no chronic medical or behavioral conditions and has had no problems with drugs or the law, she did not qualify for housing assistance from the county due to a low “vulnerability score,” which is designed to identify applicants with the most urgent need for help. Goodman is far from alone in facing housing problems. Tens of thousands of people live in shelters or on the streets in the cities and states where Griffin owns homes — about 79,000 in New York City, 86,000 in Chicago, 28,000 in Florida, 10,000 in Colorado and 15,000 in Hawaii, according to the Department of Housing and Urban Development (HUD). Nationally, HUD counted 568,000 homeless in January 2019, the most recent figure available. And homeless shelters are reporting increased demand as people lose their jobs because of the coronavirus pandemic. The housing gap is one facet of growing inequality in America, according to government agencies. The U.S. Census Bureau reported in September that the income disparity is higher than at any time since the bureau started measuring it a half-century ago. The Congressional Budget Office projects the gulf will widen through next year. Capital gains — earnings from the sale of stocks, real estate and other financial assets — accrue mostly to the wealthy and until recently have grown faster than wages. The academic-achievement gap between rich and poor children has not narrowed in 50 years, and some scholars say it has widened. And the coronavirus catastrophe is worsening the lives of low-income workers and people of color, who are more likely than better-off and white Americans to get sick, to die and to suffer financial devastation as restaurants, hotels, retail stores, hair salons and other businesses shut down during the pandemic. The unemployment rate has shot up to at least 12 percent, the highest since the Great Depression in the 1930s, former Federal Reserve Chair Janet Yellen estimates. “The speed and magnitude of the labor market's decline is unprecedented,” said Constance Hunter, chief economist at KPMG, a financial services firm. These trends, including the ongoing threat of automation to the jobs of both blue- and white-collar workers, have captured the attention of politicians and business leaders, as well as a large portion of everyday Americans. Homeless New Yorkers camp out on a city street on April 8. Analysts expect more Americans to struggle to find food and housing because of the economic devastation from the coronavirus pandemic. (Getty Images/NurPhoto/Bastiaan Slabbers) | If business leaders do not consider “hard questions about capitalism,” warned entrepreneur Chris Larsen, who made billions founding companies, they will face “ideologues seeking to point fingers, assign blame and make reckless changes to the system.” Yellen, when she headed the Fed, asked whether the income disparity is consistent with American values. And her successor, Jerome Powell, said last year that “we have work to do to make sure that the prosperity that we do achieve is widely spread.” But debate is fierce over what, if anything, should be done to reduce inequality in the United States. The large Democratic presidential field — which was winnowed down in April to just former Vice President Joe Biden — made wealth disparity a central theme of the 2020 campaign, with candidates proposing to raise taxes on the rich, expand health insurance for the poor and spend more on public education. Some conservatives say such measures would be unnecessary or even counterproductive. Edward Conard, a visiting scholar at the conservative-leaning American Enterprise Institute (AEI), calls the wealth gap an inevitable byproduct of an economy that prospers by rewarding innovators and risk-takers. Before the coronavirus struck, the United States had enjoyed a strong economy with low unemployment rates and rising wages. After an 11-year bull market, the Dow Jones Industrial Average hit a record high of 29,551 on Feb. 12. “You want people to take risks and work very hard and produce the kinds of innovation that grows the economy,” Conard says. Because Americans are rewarded for doing so, he adds, “we have been way more successful [than other countries] at motivating our talent to take entrepreneurial risks.” Other conservatives — and some liberals — strongly oppose wealth taxes, arguing they would be bad for the economy, unconstitutional or ineffective. Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank and advocacy group, says wealth taxes would ultimately harm worker productivity and lower wages. Corporate leaders, meanwhile, disagree among themselves about businesses' role in exacerbating inequality and what companies should be doing to reduce the income disparity. Many argue society fares best when companies are strong and profitable, but others say businesses should put larger societal needs on an equal footing with profitability. Ray Dalio, founder and co-chairman of the Bridgewater Associates investment-management firm, warned that inequality is jeopardizing both “capitalism and the American dream.” Most Americans are upset about inequality, polling shows. In a Pew Research Center survey last fall, 61 percent said there is too much economic inequality in the country today. A 2018 AEI poll found 57 percent agreeing that “the fact that some people in the United States are rich and others are poor represents a problem that needs to be fixed.” The AEI survey led institute visiting scholar Samuel Abrams to warn Republicans that “these sentiments about poverty and inequality are very real and run deep through” the U.S. population. Inequality has been present since before the nation's founding, but the disparity has varied over time. The Gilded Age after the Civil War was an era of deep poverty among workers and small farmers and great wealth among business tycoons in railroads and other industries. World War II and its aftermath led to an economic boom that benefited most Americans. But that began to change in the 1980s, according to economists, when the Reagan administration obtained business deregulation and deep tax cuts for top income-earners, and when management theory elevated the interests of shareholders above the community. Succeeding Democratic administrations mostly pushed back against these pro-business changes, but they did not completely reverse the tax and regulatory reductions. And the Trump administration resumed lowering taxes and pursuing deregulation when it came to power in 2017. Tax cuts that year bestowed benefits primarily on businesses and the wealthy. Meanwhile, Supreme Court decisions rolling back campaign finance and election regulations have enhanced the political clout of businesses and wealthy individuals, analysts say. Various statistics highlight the widening wealth disparity in American society: The United States had 607 billionaires in 2018, up 50 percent from 2010, Forbes reported. The richest 0.1 percent of American households owns between 15 and 20 percent of all U.S. wealth, the most since the Great Depression, according to various studies. The richest 10 percent controlled 70 percent of the wealth in 2018, up from 61 percent in 1989, the Federal Reserve Board said. The bottom half held just 1 percent of the wealth, down from 4 percent in 1989. Earnings disparities explain some of the wealth gap. CEO pay at top corporations averages about $13 million — 361 times their employees' average earnings, up from 20 times in the 1950s. Overall, the richest 1 percent of families received 49 percent of real income growth from 2009 to 2017, according to a study by economist Emmanuel Saez at the University of California, Berkeley. Economists cite the stock market as another factor in the wealth gap. The richest one-tenth of U.S. households hold more than 80 percent of all stocks owned by Americans. The wealthy have gotten wealthier because, before the coronavirus pandemic ended the long bull market in March, stock values had increased nearly five times more than wages since 1964, a trend that accelerated beginning in the 1990s. In addition, the wealthy bequeath much more to their heirs than do the middle and lower classes. High-paid jobs in technology bestow their highest rewards on the well-educated, who often are the children of highly educated parents with large incomes. Rice University sociologist Brielle Bryan also blames Congress' failure to raise the federal minimum wage, which has been at $7.25 for more than a decade. (Twenty-six states have higher ones.) Indivar Dutta-Gupta, co-executive director of Georgetown University's Center on Poverty & Inequality, cites the decline of unions, saying it leaves workers with less leverage to demand better wages and benefits. Inequality hits some groups especially hard. White households have nearly 10 times the wealth of black households. Even among the top 5 percent of earners, women make about 68 percent of what men do. White families in 2016 had nearly 10 times the median wealth of African American families — a wider divide than in 1983, when whites had about eight times the black median wealth, according to the Urban Institute. In 2016, the median financial assets of a white family totaled $171,000, versus $17,409 for a black family. In 1983, adjusted for inflation, white families had $105,369 in assets and black families had $13,324. Source: Serena Lei, “Nine Charts about Inequality in America (Updated),” Chart 3, Urban Institute, Oct. 5, 2017, https://tinyurl.com/hsrvse4 Data for the graphic are as follows: Year | White Median Family Wealth | Black Median Family Wealth | 1983 | $105,369 | $13,324 | 1989 | $134,678 | $8,023 | 1992 | $116,892 | $16,603 | 1995 | $120,269 | $17,101 | 1998 | $141,614 | $22,870 | 2001 | $166,511 | $26,149 | 2004 | $179,283 | $25,944 | 2007 | $198,623 | $24,318 | 2010 | $143,416 | $17,575 | 2013 | $146,314 | $13,487 | 2016 | $171,000 | $17,409 | And economic disparities create other forms of inequality. The rich tend to live longer and healthier lives than the poor. Life expectancy dropped between 1980 and 2010 for the poorest one-fifth of Americans. Wealthy Americans — those with financial assets averaging $980,000 a year — live free from disability for eight to nine years longer than the poor, who average $29,000 a year, according to a study in The Journals of Gerontology: Series A. Inequality also exists among localities and regions. Much of the job growth since the 2007-09 recession was concentrated in a handful of cities with well-educated workers, such as Boston, Seattle and San Jose, Calif. Between 2005 and 2017, Boston, Seattle, San Diego, San Francisco and Silicon Valley got nine of 10 jobs created in industries that a Brookings Institution report termed the “frontier of innovation,” which includes software, pharmaceuticals, semiconductors and data processing. In Texas, almost all net growth in jobs and new businesses occurred in the Austin, Dallas, Houston and San Antonio metropolitan areas. Within booming cities, an influx of high-paid workers drives up housing prices and pushes low-paid workers out of town, forcing them into long commutes. As business executives, politicians, economists and rank-and-file Americans ponder the wealth gap and its implications, here are some of the questions they are debating: Should the federal government tax wealth to reduce inequality? Two former presidential candidates, Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., have proposed hefty federal taxes on the wealthiest Americans, both to fund bigger and new government programs and to reduce economic inequality. The proposals have received support from liberal and Democratic activists and the general public. But they are strongly opposed by conservatives, many wealthy individuals and even some liberals, who say the proposed taxes are unconstitutional, ineffective or would retard economic growth. Warren made her plan a centerpiece of her presidential campaign, which ended in March. It would impose a 2 percent tax on household net worth above $50 million and 3 percent above $1 billion. Sanders, who quit the Democratic race on April 8, would tax household net worth above $32 million at 1 percent and raise the tax in steps until it reached 8 percent on wealth above $10 billion. For single taxpayers, Sanders' 1 percent tax would start at above $16 million and hit 8 percent at above $5 billion. Saez and Gabriel Zucman, both economists at Berkeley, said the proposal would halve the net worth of the typical billionaire in 15 years. Two-thirds of Americans, including most Republicans, approve of a 2 percent tax on household wealth above $50 million, a survey for The New York Times found last summer. Supporters of higher taxes say the levies will fund a more activist government and reduce the income and wealth gaps. They point out that sales and property taxes disproportionately affect low-income households, and the Social Security payroll tax does not apply to income above $137,700. The state with the largest income gap in 2016 was New York, according to the most recent data available from the U.S. Census Bureau's American Community Survey. Other populous states, including California, Florida and Texas, also had relatively large gaps; Alaska had the least income inequality. Income inequality rose in every state between 2010 and 2016. Source: Chris Kolmar, “These Are the States with the Highest (and Lowest) Income Inequality,” Zippia, March 2018, https://tinyurl.com/wpvhalm Data for the graphic are as follows: State | 2016 National Income Inequality Ranking | Alabama | 9 | Alaska | 50 | Arkansas | 18 | Arizona | 20 | California | 4 | Colorado | 29 | Connecticut | 2 | Delaware | 39 | Florida | 5 | Georgia | 7 | Hawaii | 46 | Idaho | 40 | Illinois | 10 | Indiana | 37 | Iowa | 44 | Kansas | 33 | Kentucky | 16 | Louisiana | 3 | Maine | 35 | Maryland | 36 | Massachusetts | 6 | Michigan | 24 | Minnesota | 38 | Mississippi | 9 | Missouri | 26 | Montana | 30 | Nebraska | 45 | Nevada | 34 | New Hampshire | 47 | New Jersey | 12 | New Mexico | 14 | New York | 1 | North Carolina | 15 | North Dakota | 31 | Ohio | 25 | Oklahoma | 23 | Oregon | 28 | Pennsylvania | 21 | Rhode Island | 17 | South Carolina | 19 | South Dakota | 41 | Tennessee | 11 | Texas | 8 | Utah | 49 | Vermont | 42 | Virginia | 22 | Washington | 32 | West Virginia | 27 | Wisconsin | 42 | Wyoming | 48 | The United States is a low-tax country that can afford to pay more, tax supporters say. Of the 36 affluent countries that belong to the Organisation for Economic Co-operation and Development, the United States ranked fourth from the bottom in taxes as a portion of the total economy in 2018. For the first time in a century, Saez and Zucman said, Americans in the bottom half of income distribution pay a higher rate in combined federal, state and local taxes than do billionaires. Josh Bivens, research director of the liberal Economic Policy Institute, says he supports a wealth tax but wants alternative plans ready as well, because “I have no idea what to make of the constitutional issues.” The Constitution says “direct taxes” must be apportioned among the states according to population, not by income or value of property. The 16th Amendment, which was ratified in 1913, was necessary to allow a federal income tax after the Supreme Court had struck down an earlier one. The high court has overturned federal taxes on land and buildings at least seven times, and “the Warren and Sanders wealth taxes would very likely be classified by courts as ‘direct taxes,’” wrote tax law professors Daniel Hemel of the University of Chicago and Rebecca Kysar of Fordham University, who describe themselves as liberal Democrats. Critics of wealth taxes note that a dozen European countries once taxed wealth, but just three do now. European officials concluded the taxes were too difficult to administer and too easy to evade, these critics say. “Stocks and bonds are easy to value, but art and other collectibles aren't,” said Steven Rosenthal, senior fellow at the Tax Policy Center, a nonpartisan think tank in Washington. “Neither is a stake in a closely held family business.” Critics also argue Sanders' and Warren's taxes would damage the economy. “A tax on success,” the American Enterprise Institute's Conard says, would discourage the innovative work of entrepreneurs who create wealth for the entire society, not just for themselves. “Entrepreneurs capture a small fraction of the value they create,” he argues. Taxation is not the best way to “extract value from that talent,” he says. “The way is to motivate them to create a dollar for themselves in order to create five for everybody else.” A wealth tax “won't blow up Silicon Valley,” Conard says, “but you probably will slow growth.” Advocates for equality and some economic experts say there are better ways to tax the rich. Raising inheritance taxes is “a more robust way” to reduce inequality, says Heather Boushey, president of the Washington Center for Equitable Growth, a liberal think tank focused on inequality. It would attack “the trend toward economic dynasties in this country.” A Miami diner is shuttered during the coronavirus crisis. The economic collapse from the pandemic has sent unemployment soaring and highlighted income disparities across the nation. (Getty Images/Bloomberg/Marco Bello) | Steven Pearlstein, business and economics columnist for The Washington Post, said that “nearly the same amount of money could be raised from the same people” by modestly increasing the income tax on investment profits and taxing capital gains inheritances, which currently go to heirs tax-free. Tax supporters say that European wealth taxes failed because they contained exemptions and deductions that are not in the U.S. plans and were easier to avoid under the European nations' laws. Wealthy Europeans can escape one country's taxes by moving elsewhere, while the United States taxes Americans wherever they live, Zucman and Saez wrote. Under the Sanders and Warren proposals, they said, Americans would pay a 40 percent “exit tax” on their net worth if they renounced U.S. citizenship and moved abroad. Zucman also said that 70 to 80 percent of the wealth of the richest 0.001 percent are equities such as stocks or bonds, which have a daily market value, and that jewelry, art and other property could be valued according to the size of insurance policies on them. Supporters also argue a wealth tax would stimulate the economy by transferring resources to less wealthy individuals who spend a larger proportion of their income than do the rich. Law professors Dawn Johnsen of Indiana University and Walter Dellinger of Duke University disagree with those who say a wealth tax would be unconstitutional. They wrote that the notion stems from a “notoriously flawed” Supreme Court decision from an era when the court upheld segregation and overturned laws that since have been accepted, such as worker protections, child-labor restrictions, the minimum wage and limits on hours worked. They also noted that even the Founders were uncertain about the issue. In his notes on Constitutional Convention deliberations, James Madison observed that one delegate “asked what was the precise meaning of direct taxation? No one answered.” To pare income disparities, should businesses focus on all stakeholders' needs? The Business Roundtable declared last year that a corporation's purpose is to deliver value to all its stakeholders — including employees, customers and the communities in which the businesses operate — and not just to shareholders. “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity,” said the Roundtable, whose membership consists of about 200 CEOs of the largest U.S. corporations. It committed to “compensating [employees] fairly and providing important benefits,” as well as “supporting them through training and education that help develop new skills for a rapidly changing world.” The statement marked a sharp shift from a previous Roundtable pronouncement in 1997: “The paramount duty of management and of boards of directors is to the corporation's stockholders.” That earlier statement echoed influential economist Milton Friedman's famous 1970 declaration that the “one social responsibility of business” was to increase profits. To focus on anything else, Friedman and others said, is to misuse shareholders' investments and to usurp the responsibilities of government. A profitable company, they argued, benefits society through the products it makes, the jobs it creates and the wealth it builds for shareholders. Middle-income households' share of the nation's total income fell from 62 percent in 1970 to 43 percent in 2018, according to the Pew Research Center, a Washington think tank. Upper-income households increased their share from 29 percent to 48 percent during the same period. The share for lower-income households was almost unchanged. (Total does not add up to 100 percent due to rounding.) Source: Juliana Menasce Horowitz, Ruth Igielnik and Rakesh Kochhar, “Most Americans Say There Is Too Much Economic Inequality In The U.S., But Fewer Than Half Call It A Top Priority,” Pew Research Center, Jan. 9, 2020, https://tinyurl.com/t9mct5k Data for the graphic are as follows: Year | Percentage Share of Middle Income Households | Percentage Share of Upper income Households | Percentage Share of Lower income Households | 1970 | 62% | 29% | 10% | 2018 | 43% | 48% | 9% | The Roundtable concluded that the 1997 statement is out of date, and many other business leaders agreed. “We're very concerned about this huge inequality thing,” said Morris Pearl, former managing director of the BlackRock investment-management company and the chairman of Patriotic Millionaires, a group of wealthy individuals campaigning for a guaranteed living wage, higher taxes on businesses and the rich, and reducing barriers to voting and the influence of money on politics. Bank of America CEO Brian Moynihan said executives “can provide great returns for your shareholders and great benefits for your employees and run your business in a responsible way.” Marc Benioff, chairman and CEO of the software company Salesforce, suggested that the U.S. Securities and Exchange Commission should require publicly held companies to disclose how they affect stakeholders. Benioff is founder of the Pledge 1% movement, which urges companies to devote 1 percent of their equity, time, product and profit to philanthropy. Salesforce, which makes software for managing customer relations, has given more than $285 million and 4 million hours of employee time to 42,000 nonprofit organizations and schools. Benioff said 9,000 companies have taken the pledge. Some liberals welcomed the new Business Roundtable statement, but also questioned how much change businesses will actually make. Some conservatives, as did some liberals, rejected the statement as inappropriate, saying businesses should stick to shareholders' interests. And some said the statement is irrelevant, because businesses cannot succeed without keeping customers, employees and the communities they operate in happy. “I like the sentiment, but I'm skeptical that a moral call to action will do that much,” Bivens of the Economic Policy Institute says. “The most obvious low-hanging fruit is to pay your taxes rather than spending high amounts on lawyers and accountants to figure out how not to pay your taxes. They also could decide to compress their own wage structure and direct more money toward the people who work for them.” Boushey of the Washington Center for Equitable Growth calls the statement “fantastic,” but adds that “I'm really curious to hear more from them about how they're going to back that up with additional steps.” Beyond their internal policies, she says, businesses should change “their engagement in the public sphere. If a policy is not supported by those at the top of the income ladder, it is highly unlikely to become law.” Dutta-Gupta of the Center on Poverty & Inequality says that “businesses alone will never be able to substantially mitigate inequality in wealth and income, but they have a major role to play.” It is in their own interest, he adds. “If they have a highly trained and educated workforce, it may be because of paid leave and high-quality early-learning and childcare and high-quality schools.” Justin Danhof, director of the Free Enterprise Project, a conservative shareholder-rights organization, said Benioff is misappropriating his stockholders' assets. “He is using the economic power of Salesforce to advance his cultural position and advance his worldview with impunity,” Danhof said. “If you are looking at it as an investor, he is literally giving away money to advance his social agenda.” The Council of Institutional Investors — which represents the interests primarily of private and public pension funds — said the Roundtable was stepping into a place it does not belong. “It is government, not companies, that should shoulder the responsibility of defining and addressing societal objectives with limited or no connection to long-term shareholder value,” the council said. “Accountability to everyone means accountability to no one.” University of Chicago political science professor Chiara Cordelli also doubted the appropriateness of the statement. “Even if they are very well intentioned, they are so powerful it becomes a question of whether they should have this kind of voice,” Cordelli said. “The more they do the work of government by themselves, the more reasons we will have to wonder whether we should trust government.” Holtz-Eakin of the American Action Forum says he is “underwhelmed” because the statement proclaimed the obvious. “If shareholders will be well served, others have to be motivated: your labor force and customers who like your product,” he says. “You're not going to maximize shareholder value if you alienate the communities you exist in and alienate workers so they don't work as hard as they should.” Can states do more to reduce inequality? State and local governments contribute to inequality in myriad ways — from unequal education funding to regressive taxation — and can help to decrease it, many liberal and conservative experts and activists agree. The most effective way to reduce inequality is to provide better education, Holtz-Eakin says, and state and local governments bear most responsibility for schools. Barbara Bowen, president of the professional staff union at the City University of New York, and students call for an end to tuition and fee hikes in December. Rising college costs disproportionately harm lower-income students, experts say. (Getty Images/LightRocket/Erik McGregor) | States have decreased funding for higher education by about 20 percent — some $14 billion — since 2008, contributing to tuition increases that hit lower-income families hardest. K-12 schools in lower-income communities receive less funding than those in affluent areas, and the current economic downturn will strain government budgets. State and local taxes in predominantly white school districts raised $2,226 more per student than in predominantly nonwhite districts in 2016, primarily because the white districts tend to be wealthier and can raise more money from property levies, according to a report released last year. The report by EdBuild, a research and advocacy organization in New Jersey that promotes more-equitable school funding, said states gave slightly more to nonwhite districts than to white districts, but not enough to overcome the difference in property taxes. Dutta-Gupta and others call for states to increase K-12 spending, but Eric Hanushek says that is not enough. Hanushek, senior fellow at Stanford University's Hoover Institution, co-authored a 2018 study that found the school achievement gap between upper- and lower-income children had not narrowed in nearly 50 years. “Our general policy is, if we've got a problem, let's just send some more money at it and hope that that does it,” he says. The real solution, he says, is to place better-quality teachers in low-income neighborhoods. Dallas and the District of Columbia are doing that and getting results, Hanushek says. They evaluate teacher effectiveness and pay bonuses to the best teachers in disadvantaged neighborhoods, he says. Because of Dallas' success, Texas is expanding the program to other districts. “I think good teachers are way underpaid,” Hanushek says, “but we pay our bad teachers too much.” Teachers unions have long opposed “merit pay,” arguing it depends too much on standardized test scores and punishes teachers who question school management. The poor, meanwhile, tend to pay a larger portion of their income in taxes than do the well-off, mostly because property and sales taxes tend to be levied at a flat rate. In addition, sales taxes on clothing and other items are regressive because the poor spend a larger portion of their income on such items than do wealthier families. Only five states — California, Delaware, Minnesota, New Jersey, Vermont — and the District of Columbia have tax systems that reduce income inequality, according to a 2018 study by the Institute on Taxation and Economic Policy. Liberals and conservatives alike say local zoning restrictions hinder construction of affordable housing. “Zoning rules are often used by [homeowners] to protect the value of their asset, and that means there is less construction than otherwise would be done and so rents are higher,” the Economic Policy Institute's Bivens says. Holtz-Eakin agrees that “there's a lot of evidence that land-use policies are driving high housing costs.” Others note that states and localities are taking steps to reduce inequality. To expand affordable housing, the Seattle and Minneapolis city councils last year voted to allow higher density in residential neighborhoods. Seattle is easing zoning restrictions on 6 percent of city land that had been limited to single-family houses, and it is allowing taller structures in areas already zoned for apartments and commercial buildings. The Minneapolis legislation permits multifamily housing on 70 percent of city land zoned for residential use. But many residents of the rezoned neighborhoods opposed the changes, saying that more density would increase pollution and traffic congestion and would diminish their quality of life. The rezoning “gave our land to developers on a silver platter,” Seattle homeowner Ruby Holland said. The laws survived legal challenges before the Washington Growth Management Hearings Board and the Minnesota Court of Appeals. The Minneapolis act might be tested at the state Supreme Court. In California — where Los Angeles alone counts 50,000 homeless residents — Democratic Gov. Gavin Newsom promised a $1.4 billion state effort to combat the problem this year. Planned actions include paying rent for homeless people, building housing, improving shelters, making state-owned land available for new shelters and making 100 state-owned trailers available for emergency housing. Newsom said the money will come from a state budget surplus that was projected at $7 billion before the coronavirus tanked the U.S. economy. Even before the coronavirus hit, some state legislators questioned the expense and complained that it lacked detail. “If I understand it correctly, we're being asked to appropriate the money now with the understanding that we'll figure out later what the specificity is,” Democratic Assemblyman Richard Bloom said. Some experts defend states' efforts to reduce inequality. “There's only so much states can do to reverse inequality,” wrote Christopher Witko, associate director of the School of Public Policy at Penn State University. “They have a smaller tax base. And, unlike the federal government, states are limited in their ability to raise taxes and spend due to restrictions in many state constitutions, and balanced budget requirements. They are also, of course, unable to shape trade and monetary policy.” Go to top Background The Gilded Age The Gilded Age — roughly from the end of the Civil War to the beginning of the 20th century — is remembered as a time of great wealth and great inequality. It also was a time of intense political partisanship and corruption, battles over tariffs, violent labor-management clashes and racial conflict. The era was “modern America's formative period, when an agrarian society of small producers was transformed into an urban society dominated by industrial corporations,” according to the University of Houston's digital history website. The Gilded Age coincided with the second Industrial Revolution, which saw the growth of the steel and oil industries; expansion of the railroads; and the advent of new technologies such as the automobile, telephone and radio. A few giant corporations came to control banking, manufacturing, meat packing, oil refining, railroads and steel. The corporations' chief owners — such as John D. Rockefeller in oil, Andrew Carnegie in steel, Cornelius Vanderbilt in shipping and railroads and J.P. Morgan in banking — were known to their supporters as “captains of industry” — and to their critics as “robber barons.” These titans became fabulously wealthy and built mansions around the world. Some of them — notably Carnegie and Rockefeller — gave away vast sums of money and created philanthropic institutions that operate today. Working conditions in factories, meanwhile, were poor, hours were long and pay was low, according to historians. The harshest effects of inequality fell on African Americans because of the lingering effects of slavery and the repression that followed the Civil War. Before 1860, plantation owners controlled slaves' economic and personal lives, including what jobs they could hold, and prevented them from accumulating any kind of wealth. The Civil War ended slavery, but Reconstruction — the federal government's effort to protect newly freed slaves' rights — did not survive the 1876 presidential election, which resulted in a virtual tie that Congress had to break. Democrats, then predominately the party of Southern whites, agreed to let Republican Rutherford B. Hayes become president in return for the withdrawal of federal troops from the South. Southern states' legislatures begin passing so-called Jim Crow laws to enforce racial segregation and deny blacks the vote, practices that continued into the 20th century. Many Northern communities also segregated their schools. The period saw the birth of the Progressive movement, championed by politicians such as Republicans Theodore Roosevelt, who became president in 1901, and Robert La Follette, who was Wisconsin's governor and served in Congress. Progressives attacked rising inequality by enacting economic and political reforms. Congress in the late 19th century passed the Interstate Commerce Act, primarily to rein in the economic power of railroads, and the Sherman Antitrust Act to ban monopolies and agreements that restrained trade. Congress also passed an income tax in 1894, but the Supreme Court overturned it as an unconstitutional direct tax. Despite Progressives' efforts, extreme inequality continued into the 20th century. American Economic Association President Irving Fisher estimated in 1919 that the wealthiest 2 percent of the population controlled more than half of the nation's assets, while two-thirds owned “almost nothing.” Initially prodded by President Roosevelt, Congress launched investigations and passed a series of economic and political reforms. House hearings attacked the Wall Street “money trust” in 1912 and 1913, most notably grilling Morgan, the era's top financier. Members of a migrant family stand in their tent in Merrill, Ore., in 1939. New Deal programs, such as the Farm Security Administration, sought to revive the economy and reduce inequality during the Great Depression. (Getty Images/Corbis Historical) | In 1913, the states ratified the 16th Amendment, making federal income taxes constitutional, and Congress adopted the nation's first permanent income tax that October. In 1919, the top tax rate hit 70 percent. An estate tax was enacted in 1916. Inequality persisted, however. By 1929, the 0.1 percent of families — 36,000 — with the highest income earned as much as the lowest-income 12 million, or 42 percent, according to historian William Leuchtenburg. Then, in late October, the stock market crash pushed the nation into the Great Depression, which left nearly 25 percent of the U.S. workforce jobless. The Depression led to the election of Democrat Franklin Roosevelt as president in 1932 and the passage of his New Deal, which sought to revive the economy and reduce inequality. With Republicans controlling Congress and the White House in 1929, the top income tax rate had dropped to 24 percent. Roosevelt and congressional Democrats raised it to 63 percent in 1933 and 79 percent in 1937. They also hiked the top estate tax to nearly 80 percent and the top tax on corporate profits to 50 percent. Until Republican Ronald Reagan's presidency in 1981, the highest income tax rate never fell below 63 percent, and it reached 94 percent during World War II. Roosevelt's reform agenda gave birth to numerous agencies and programs: Social Security, which provided a retirement income for the elderly; Aid for Dependent Children, which provided support to single mothers; the Works Progress Administration, which hired the unemployed for public works projects; the Federal Deposit Insurance Corp., which guaranteed bank deposits and strengthened regulation of the financial industry; the Agricultural Adjustment Administration, which sought to increase farm income and improve soil conservation practices; and the National Labor Relations Act, which intended to “encourage collective bargaining.” World War II and Its Aftermath World War II ended the Depression by putting more than 16 million Americans in uniform (up from 180,000 in 1939), hiring millions to replace them in the civilian workforce and stimulating industry with the demand for weapons and other war materiel. The boom continued after the war, as industry responded to pent-up consumer demand, and the U.S. economy towered above much of a world devastated by the conflict. Income grew at about the same rate for all Americans. The growth also was “the direct result of a fruitful partnership between the private sector, federal government and universities,” according to Massachusetts Institute of Technology professors Jonathan Gruber, an economist, and Simon Johnson, a management scholar. Government research and development (R&D) spending was the equivalent of nearly 2 percent of the U.S. economy in 1964. As a result, they wrote, “the United States led the world in innovation, creating entirely new sectors such as jet aircraft, life-saving drugs and vaccines, microelectronics, satellites and digital computers.” Economic growth began to slow in the 1970s, they said, and now runs at half the rate experienced before 1973. That accompanied a decline in federal R&D spending, which now stands at about 0.7 percent, they wrote. Following passage of the National Labor Relations Act, union membership grew into the 1950s, when it represented one-third of the workforce. Now, it represents one-tenth. The Great Society The next concerted attack on inequality began in the mid-1960s, when Democratic President Lyndon Johnson pushed through his Great Society reforms. Johnson had a comprehensive agenda, ranging from environmental protection to aid for the arts and humanities. But much of it sought to address inequality, by creating Medicare and Medicaid health insurance; outlawing racial discrimination in public accommodations; banning racial employment discrimination by federal contractors; funding vocational education; creating the Job Corps to provide training for disadvantaged young people and Head Start for early-childhood education; and expanding Social Security. But the post-World War II economy also saw a shift from manufacturing — which supported many well-paying jobs that did not require higher education — toward low-paid service work and high-paid jobs that required college degrees. And globalization further reduced U.S. demand for lower-skilled workers. Ironically, wrote conservative commentator David Brooks, “over the last generation, capitalism has produced the greatest reduction in global income inequality in history.” As a result, however, “low-skill workers in the U.S. are now competing with workers in Vietnam, India and Malaysia. [So] … the reduction of inequality among nations has led to the increase of inequality within rich nations, like the United States.” In addition, many high-tech companies require far fewer workers. When AT&T was the nation's most valuable company in 1964, it had 758,611 employees. When Facebook acquired the Instagram social network for $1 billion in 2012, 13 people worked there. Reagan, a movie actor turned politician and former California governor, ran for president in 1980 to reverse the federal activism of the New Deal and Great Society and to reduce government oversight of businesses. He started to enact his agenda as soon as he took office in 1981. Even with Democrats controlling the House of Representatives, Congress dropped the top estate tax to 50 percent from 70 percent, cut all income tax rates by one-quarter and offered more-generous deductions for depreciation and lease payments. Lawmakers also reduced aid to the working poor and permitted states to place work requirements on federal aid recipients. In 1986, Congress cut the top income tax rate to 28 percent from 50 percent. Before Reagan left office in January 1989, federal assistance for low-income housing had dropped to $7 billion from $32 billion. The economy boomed during Democrat Bill Clinton's presidency in the 1990s, with income growing by an average of 32 percent from 1992 to 2000. But inequality grew as well, with the top 1 percent doubling their earnings, while the average increase for everyone else was 20 percent. Tax-cutting resumed during the eight years Republican George W. Bush was president. Laws adopted in 2001 and 2003 gave the lowest-income taxpayers a 5 percent break and the highest a 4.6 percent cut. The rest received a 3 percent reduction. The legislation also planned to eliminate the estate tax in 2010, but the tax was reinstated in 2011 as a result of legislation passed when Democrats controlled Congress and the White House. In addition, since the 1970s, the Supreme Court has overturned a series of campaign finance restrictions, enabling increased political spending by wealthy individuals and corporations and enhancing those groups' abilities to bend public policy toward their interests. Some economists argue that deregulation allowed businesses to engage in risky practices that caused the deep recession of 2007-09, which was the worst economic crisis since the Great Depression. Dressed in pig costumes, members of the Laborers' International Union of North America rally outside a conference for homebuilders in Washington, D.C., in 2008. The union condemned as corporate welfare a $25 billion taxpayer-funded program to help struggling construction firms. (Getty Images/Chip Somodevilla) | “We are now in a vicious cycle,” said economist Joseph Stiglitz of Columbia University. “Greater economic inequality is leading, in our money-driven political system, to more political inequality, with weaker rules and deregulation causing still more economic inequality.” The 2007-09 crisis began with the bankruptcy of financial institutions that specialized in issuing subprime mortgages — loans to homebuyers with limited ability to repay. The housing lenders' failures were followed by the collapse of major financial institutions such as Bear Stearns and Lehman Brothers. Foreclosures resulting from the risky lending also rose. From autumn 2007 until spring 2009, the Dow Jones Industrial Average fell from its then-record high above 14,000 points to less than 7,000. The net worth of American families and nonprofit organizations dropped by more than one-fifth. Congress responded in early 2008 by sending cash directly to taxpayers, cutting business taxes and raising the amount of money available through federal home loan programs. Later in the year, lawmakers enacted the Troubled Asset Relief Program, or TARP, which allocated $700 billion to keep struggling companies alive through federal purchase of their assets. After Democrat Barack Obama became president in 2009, Congress approved additional legislation that authorized $787 billion in tax cuts and funding for infrastructure projects, education, health care and renewable energy. Lawmakers also restored some federal regulation of the financial services industry. Republican Donald Trump's election in 2016 swung the pendulum back toward tax cuts and deregulation that critics said primarily benefited corporations and wealthy individuals. As did previous GOP tax-cutters, Trump said the reductions would boost economic growth, create jobs and help lower-income workers. The Bloomberg news organization calculated that the nation's six biggest banks paid $32 billion less tax in 2018 and 2019 than they would have under previous law. Rather than use the savings to significantly expand lending and employment, however, they slowed their growth in lending from 3 percent in 2017 and 2018 to 1 percent last year. The banks laid off about 1,200 workers in 2018 and 2019. They reported their largest profits in history last year, and they increased payments to shareholders by 14 percent. With the economy still booming last year, American Bankers Association chief economist James Chessen said banks were building financial stockpiles “as they look ahead to the twilight of this economic cycle.” Banks had increased lending to businesses, he said, and consumers had benefited from higher interest rates on deposits. Go to top Current Situation The Pandemic The coronavirus is upending the economy and widening the divide between the haves and the have-nots. The earliest virus-caused job losses occurred in the hospitality industry, which governments closed to keep people from congregating in close quarters and which suffered from a sharp decline in travel. Restaurants and hotels employ millions of low-paid workers who are less likely to have comprehensive health insurance or savings to fall back on. “Pre-existing social vulnerabilities only get worse following a disaster,” said Nicole A. Errett, a public health expert at the University of Washington. “If there's one person who can't get treatment, that person is posing a risk to everyone.” People with health problems are more likely to catch the virus and develop the most devastating symptoms, and low-income individuals are about 10 percent more likely than others to have a chronic health condition. In the top quarter of earnings distribution, 90 percent of employees have paid sick leave, compared with less than half in the bottom quarter. In addition, a Gallup Poll found that 26 percent of Americans deferred health care last year because they could not afford it, while another poll found that lack of money caused a quarter of families to have someone skip recommended medical testing. A middle school classroom in Kentfield, Calif., sits empty on April 1. As the coronavirus pandemic has closed schools nationwide, low-income students have suffered more than their well-off peers, according to experts. (Getty Images/Justin Sullivan) | Poor children are suffering greater harm from school closures than affluent students because they rely on school programs for hot meals. Many also are falling behind academically because they do not have internet access and cannot participate in online classes. Economists also say the pandemic is disproportionately harming the health and finances of African Americans, who have higher levels of poverty and lower levels of health insurance than do whites. In Michigan, African Americans are 14 percent of the population but represent 35 percent of COVID-19 cases and 40 percent of deaths. In Milwaukee County, Wis., African Americans constitute 26 percent of the population but represent 50 percent of the virus cases and 81 percent of deaths. Congress passed a $2.2 trillion measure — equal to about half the annual federal budget — to provide relief from the economic crisis. Its passage followed adoption of two smaller relief bills earlier in March. The stimulus will send $1,200 to most Americans and $500 for each of their children. It will raise unemployment benefits; fund loans, grants and tax breaks for businesses; provide financial aid to state and local governments; and assist struggling medical facilities. The bill passed 96-0 in the Senate and by near-unanimous voice vote in the House. Liberals reluctantly agreed to massive assistance to corporations, and conservatives just as reluctantly supported the legislation's huge price tag. “I'm going to have to vote for something that has things in it that break my heart,” said conservative Rep. David Schweikert, R-Ariz. Economists said the legislation will ease, but not end, the economic downturn. University of Pennsylvania finance professor Jeremy Siegel said the action “will dramatically cushion the economic blow from the shutdowns.” But finance professor Richard Marston, also of Penn, said that “it will certainly not stimulate the economy back to life.” Tax Plan Debates To reduce inequality, some analysts and others said, governments must look beyond the current financial crisis. Dan Tierney, founder of the Wicklow Capital venture capital firm in Chicago, called for increased public spending on education and infrastructure, for making the tax system more progressive and for expanding the earned income tax credit through which the federal government provides financial assistance to low-income workers. He also said broadening access to health care and increasing the ability of workers to keep their insurance when they switch jobs would not only improve people's health but also would increase “productivity and economic mobility.” Advocates of reducing inequality have proposed many tax plans to narrow the wealth gap, including raising taxes on capital gains and dividends to the same rates paid on ordinary income; removing the cap on the Social Security tax, which currently applies only to wages up $137,700, and applying it to all forms of income; raising income tax rates on the wealthy; and raising the tax rate on large estates. Sen. Warren would not only lift the Social Security tax cap but also raise that tax on incomes above $250,000. She would use the proceeds to increase Social Security benefits by $200 a month for all beneficiaries. Sen. Sanders has introduced legislation to penalize corporations that have huge pay gaps between their chief executives and rank-and-file workers. It would add 0.5 percentage points to the federal income tax of companies whose top executives earn 50 times more than the rank-and-file. It would gradually increase to 5 percent when the gap is 500 times. Sanders and Senate Minority Leader Chuck Schumer, D-N.Y., have introduced legislation to penalize companies that buy back stock from their shareholders without offering certain benefits to workers. The senators say buybacks increase inequality and decrease companies' productivity. “When corporations direct resources to buy back shares on this [large] scale, they restrain their capacity to reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages, paid medical leave, retirement benefits and worker retraining,” the senators wrote in The New York Times. Their bill would forbid a corporation to buy its own stock unless it “invests in workers and communities first,” by paying employees at least $15 an hour, providing seven days of paid sick leave a year and offering “decent” pensions and “more reliable” health benefits. Noting that companies might boost dividends instead of buying stock, the senators said Congress should consider regulating dividends as well. Between 2008 and 2017, 466 of the S&P 500 companies spent more than half of their profits on stock buybacks, which put money into shareholders' pockets, Schumer and Sanders said. Following the 2017 tax cuts, corporations purchased more than $1 trillion of their own stock, the most ever in one year, the senators said. Critics of the proposals argue that tax increases and government meddling in business decisions depress economic growth. “What will frequently happen [when raising taxes] is you get less investment in the productive sides of society,” says Chuck DeVore, vice president for national initiatives at the Texas Public Policy Foundation, a conservative think tank. “Firms should reinvest internally when it's their best use of capital, and they should pay it out to investors when it's not,” Laurie Hodrick, visiting finance professor at Stanford University, said of buybacks. “The money doesn't vanish,” said Lloyd Blankfein, former chief executive of the Goldman Sachs financial services firm. “It gets reinvested in higher-growth businesses that boost the economy and jobs.” Others want to turn more employees into shareholders. Last year, for instance, Massachusetts hired two consultants to encourage the state's business owners to help their employees acquire their companies' stock. Some liberals want governments to buy stock and then use the dividends to benefit their citizens while employing shareholder voting power to influence company policies. “These plans are about redistributing the ownership of capital to workers, rather than just improving the wages of workers,” said Peter Gowan, a policy associate at the Democracy Collaborative, a left-leaning think tank. The danger is governments could use their ownership leverage to force companies to take actions contrary to the firms' financial interest, warned Adam Ozimek, chief economist at Upwork, an employment service that connects employers with freelance workers. To help reduce inequality, some liberals call for making higher education free for everyone, even those from well-off families, and canceling student debt. Opponents of the proposal — liberals as well as conservatives — say lower-income families should not be taxed to finance free tuition for students who most likely will go on to lucrative careers. Bivens, of the Economic Policy Institute, says that criticism can be addressed by raising taxes on higher-income individuals. He says that way, “people who get very-high-paying jobs are going to be paying for their college with their taxes.” Free tuition is needed because college is “a risky investment for a lot of people,” Bivens says. Not every graduate lands a high-paying job, he says. Plus, “there are a lot who don't finish and still have the loans.” Making something free usually is a bad idea, the American Enterprise Institute's Conard says. “We see in health care that a little bit of co-pay makes resources be better rationally allocated.” Go to top Outlook Automation's Threat Expected advances in automation will upend the economy and exacerbate income and wealth gaps, Daniel Susskind and Andres Oppenheimer predict in recently published books. Susskind, an economics fellow at Oxford University, and Oppenheimer, a Pulitzer Prize-winning columnist for The Miami Herald, paint a portrait of a world without work as it is known today. Equipped with artificial intelligence, machines “will open up peaks in capability well beyond the reach of even the most competent human beings alive today,” Susskind wrote. Those machines will replace many of the most highly skilled workers, such as doctors and engineers, he said. Artificial intelligence can make the world more prosperous, Susskind and Oppenheimer wrote. The challenge will be figuring out how to share the prosperity when the economy does not need a vast human workforce. Both wrote they are “hopeful” the challenge can be met. Washington Post economics columnist Robert J. Samuelson countered that “the lesson from history is that inventions and innovations have typically been more than offset by employment gains.” The coronavirus crisis aside, the tightening labor market is shifting to workers' advantage, he said. The problem: “Many workers need more training so that they are more employable.” The Texas Public Policy Foundation's DeVore agrees, saying that manufacturers “have more productive capacity coming online, and we won't have enough workers to meet the need.” He says he does not see a decline in the income gap, but predicts “absolute wealth increasing. As long as that is happening, I'm less concerned about inequality at the top.” The Hoover Institution's Hanushek says there is “a lot of uncertainty about whether we can put in place better policies” that close the education gap. Noting that unions tend to oppose teacher evaluations, he suggests “a bargain: We drastically increase overall teacher salaries in exchange for allowing some evaluation of teacher effectiveness.” The American Enterprise Institute's Conard says he fears political pressure to act on inequality will lead to slower growth and less innovation. “I think there's political will building for such liberal proposals as tax the rich,” he says. Dutta-Gupta of the Center on Poverty & Inequality also sees political pressure increasing — but predicts it will be beneficial. “There is growing appreciation that inequality harms our economy and harms our democracy” and that reducing the wealth gap would boost overall prosperity, he says. “I think in the long run there will be actions designed to mitigate economic inequality in the United States. The real question is how soon.” Go to top Pro/Con Pro Research Director, Economic Policy Institute. Written for CQ Researcher, April 2020 | Recent decades have seen a staggering upward redistribution of income in the United States, with the share of total income claimed by the richest 1 percent of households effectively doubling. This growing income disparity has come directly at the expense of the bottom 90 percent. The inequality has been a root cause of the decline in economic growth that has characterized the post-2000 period. As we redistribute income toward higher-income households with high savings rates, demand for goods and services declines. It is time for policymakers to adopt bold measures to push back against the rise in inequality. A great place to start is higher rates of taxation on the top 1 percent, a group that has seen tax rates fall slightly, even as its share of overall income rose dramatically. There are plenty of strategies we could undertake to ensure a fairer share of taxes is paid by the top 1 percent, but part of the mix has to be higher taxes on income generated from wealth instead of work. The difference in incomes between the top 1 percent (and especially the top 0.1 percent) and the rest of us isn't just size, it's the source. Simply put, the top 1 percent earn a lower share of their income from working and a higher share from simply owning financial assets. For the government to tax these asset-based income flows, it must tax wealth at higher rates. There are plenty of ways to tax the income generated by this wealth, and plans by Democratic candidates throughout the recent presidential primaries sketched out many of them. For example, narrowing the gap in taxation rates imposed on ordinary income compared to those on capital gains and dividends would help. So would closing loopholes that allow wealthy households to defer taxes on financial gains for an entire lifetime and pass estates and gifts onto heirs tax-free. Of course, the most direct way to tax the income generated by wealth is to tax it directly, as primary candidates Elizabeth Warren and Bernie Sanders proposed. Opponents of such a tax call it radical. But what is really radical is the staggering rise of the gap in wealth between the rich and everyone else, and the zero-sum transfer of income to the richest households in recent decades. Using tools that have real promise to arrest this unfair and inefficient transfer seems prudent, not wild-eyed. | Con President, American Action Forum. Written for CQ Researcher, April 2020 | Democratic Sens. Elizabeth Warren and Bernie Sanders have popularized the idea of taxing household wealth, with the goal of raising large amounts of revenue from a small number of affluent households. These proposals have crippling defects and should be dismissed. The list of disqualifiers is potentially long. Wealth taxes may not be constitutional. They might be subject to enormous avoidance, making the administration complicated and costly. Valuation issues are an invitation for perpetual litigation. There is a widespread compliance burden because everyone would have to file a wealth tax return, if only to prove they owe no tax. Put all those aside. Wealth taxes should be rejected because they fail their basic objective to raise revenue in a progressive fashion. Recent research by Gordon Gray and me indicates that as much as 63 cents of every $1 raised through wealth taxes would be borne by workers in the form of reduced labor income. How does this happen? First, the wealth taxes are draconian taxes on the returns earned from saving and investing. The Warren version tops out at 6 percent annually, which means that if the wealth generates an annual return of 6 percent, there is an effective tax rate of 100 percent on the returns from capital. Even if you manage to get the return up to 12 percent, the effective tax rate is 50 percent. That's steep; the Sanders top rate of 8 percent is even steeper. Worse, proponents tout the wealth tax as the solution to the fact that a large fraction of the nation's investable capital is owned by the top 1 percent. That means that the bulk of this capital will face potentially draconian annual tax rates. The impact will depend on the amount of economic activity that is taxed — not the number of people — so one would expect the usual array of responses to high taxes on capital, such as moving capital overseas or reducing saving and investment. Research is quite clear that reduced quantity and quality of intellectual property and physical capital — which are funded through capital investments — will lower worker productivity and lead to reduced wages for workers. Some counter that this projected outcome ignores the economic benefits of the programs that could be funded by wealth taxes. That argument misses the point. If there are such productive opportunities, it makes more sense to finance them in a less destructive fashion. Wealth taxes: Just say no. | Go to top Chronology
| | 1860s–1890s | Inequality grows during Gilded Age. | 1865 | The Gilded Age, an era of rapid industrial development and great inequality, begins. | 1877 | Federal troops are withdrawn from the South, enabling continued white subjugation of African Americans. | 1893 | A financial panic spurs development of the Progressive movement, which aims to curb urban corruption and poverty and rein in powerful banks and railroads. | 1900s–1930s | Progressives attack inequality; liberals lead response to Great Depression. | 1913 | The U.S. House of Representatives holds hearings on the Wall Street “money trust.” … The 16th Amendment, making a federal income tax constitutional, wins ratification. | 1919 | The wealthiest 2 percent of the U.S. population is estimated to own more than half the nation's assets…. The top income tax rate reaches 70 percent. | 1929 | After nearly a decade of conservative Republican governance, the top income tax rate falls to 24 percent…. The stock market crash triggers the Great Depression. | 1933 | Congress begins enacting President Franklin Roosevelt's New Deal programs, eventually establishing Social Security pensions for the elderly and other social programs…. The top income tax rate is raised to 63 percent. | 1940s–1960s | World War II creates an economic boom amid new attempts to reduce inequality. | 1944 | Congress enacts a maximum 94 percent income tax rate to help finance the military effort in World War II. | 1953 | General Motors President Charles Wilson, appointed to be secretary of Defense, tells Congress that “what was good for our country was good for General Motors, and vice versa.” | 1954 | The U.S. Supreme Court rules school segregation unconstitutional, beginning a decades-long series of judicial and legislative actions that slowly increase the rights of African Americans…. Labor union membership peaks at more than one in three workers. | 1959 | The decade ends with earnings growing at the same rate across income groups. | 1963 | Congress begins adopting President Lyndon Johnson's Great Society proposals, which create Medicare, Medicaid and other social programs. | 1970s–1980s | Conservatives curb government activism while businesses focus on shareholders. | 1970 | Conservative economist Milton Friedman says the “one social responsibility of business” is “to increase its profits.” | 1981 | Following newly elected President Ronald Reagan's lead, Congress drops the top income tax to 50 percent from 70 percent, increases the value of tax deductions and reduces aid to lower-income Americans. | 1986 | The top income tax rate falls to 28 percent. | 1989 | Reagan leaves office having cut annual federal assistance for low-income housing to $7 billion from $32 billion. | 1990s–Present | Healthy economy fails to reduce inequality; recession worsens it. | 1997 | The Business Roundtable, a group of major corporate leaders, says “the paramount duty of management and of boards of directors is to the corporation's stockholders.” | 2001 | President Bill Clinton, a Democrat, leaves office after an eight-year tenure during which the average personal income of Americans grows 32 percent, but the top 1 percent of wage earners doubles its income. | 2007 | The worst U.S. recession since the 1930s begins and spreads worldwide. | 2008 | Congress approves spending hundreds of billions of dollars to stimulate the economy. | 2009 | The recession ends, but the Dow Jones Industrial Average of stocks has fallen by half from 2007 and American families' net worth has dropped more than a fifth…. Led by newly elected President Barack Obama, Congress approves hundreds of billions of dollars in additional stimulus spending. | 2013 | Congress raises top income tax rate to 39.6 percent. | 2016 | President Trump's election signals a swing back to tax cuts and deregulation. | 2018 | The richest one-tenth of Americans owns 70 percent of the total national household wealth, the bottom half just 1 percent. | 2019 | The U.S. Census Bureau says income inequality hits a 50-year high…. The Business Roundtable says the purpose of a corporation is to deliver value to “all of our stakeholders,” not just to shareholders, illustrating a growing concern about inequality among corporate executives…. Unions now represent just one in 10 U.S. workers. | 2020 | Democratic presidential candidates propose attacking inequality through a more progressive tax system, increased spending on education and expanded assistance to lower-income Americans…. Coronavirus pandemic leads to massive layoffs of hourly and contract workers in the hospitality and other industries; experts worry inequality will worsen. | | | Go to top Short Features For James Charles, the homeless and inequality crises hit awfully close to home. About six years ago, Charles, who is a used-car dealer in Charlotte, N.C., learned that a woman was living in a car he had sold her. The lender was repossessing the car because she had fallen behind in her payments, so she had no place to sleep. With the homeless shelters full, Charles put her up at a hotel for a time. “That's when we first realized there were people living in their cars in Charlotte,” he said. “We never thought at the time that we'd end up homeless ourselves.” Two years later, Charles and his family were evicted from their rental home when the owner decided to sell. Given only 10 days' notice, they were not able to find a place that could accommodate him, his wife, their six children and their pit bull dog, so they lived in a motel for three months. These experiences inspired Charles to open the parking lot at his dealership, which he owns with relatives, each night to people who are living in their cars. As word of the practice spread, another business donated a portable latrine and people began giving clothing, blankets and snacks. After reporting appeared in national media, Charles began receiving donations from around the country. Charles' project is part of a growing trend of individuals and organizations — both those of ordinary means and the wealthy — acting to reduce the impact of inequality. About 150 miles northeast of Charles' dealership, in Durham, N.C., 29-year-old David Roswell is planning to give away most of the $7.5 million he expects to inherit from the family fortune begun by Louis Blaustein, his great-great-grandfather. Blaustein founded the American Oil Co., later known as Amoco, which now is part of BP. Roswell, who has parted with about $1.6 million so far, belongs to Resource Generation, an organization of more than 600 wealthy 18- to 35-year-olds who pledge to give away a large part of their fortunes. The group asks its members to support grassroots organizations that focus on affordable housing, education, workers' rights and other social issues. Two New Englanders founded the organization in 1998 to encourage well-off young people who want to create a more equitable society. “Our mission is to organize young wealthy people in the top 10 percent to use their money to support racial and economic justice,” said Iimay Ho, the group's executive director. Roswell also has gotten his relatives to create a fund that he and several cousins can use to promote climate justice. He said they have begun “thinking about what reparations means for an oil family trying to repair harm that we've caused in the Gulf [of Mexico] and across the world.” But the family has not yet agreed to spend down the family foundation's endowment. Concerned that Roswell's descendants will not be able to live in the family's accustomed style, his grandparents have put about $3 million into trust funds for his as-yet-nonexistent children and grandchildren. More-traditional philanthropists are attacking inequality in other ways. Former New York City Mayor and Democratic presidential candidate Michael Bloomberg gave $1.8 billion in late 2018 to enable his alma mater, Johns Hopkins University, to ignore financial need in undergraduate admissions decisions and to eliminate all student loans. Johns Hopkins called it the largest gift to an educational institution in U.S. history. Former New York City Mayor Michael Bloomberg gave a record $1.8 billion in 2018 to Johns Hopkins University, his alma mater. The donation is intended to improve access to the Baltimore school by replacing student loans with scholarships. (Getty Images/Ilya S. Savenok) | “America is at its best when we reward people based on the quality of their work, not the size of their pocketbook,” Bloomberg said when he made the donations. “Denying students entry to a college based on their ability to pay undermines equal opportunity [and] perpetuates intergenerational poverty.” Amazon founder Jeff Bezos and his then-wife, MacKenzie Bezos, last year gave $97.5 million to various organizations combating homelessness in 16 states and the District of Columbia. It was part of a long-term pledge to donate $2 billion to assist homeless families and support preschools in low-income communities. Robert Smith, co-founder and CEO of the Vista Equity Partners investment-management firm, and his family gave $34 million to Atlanta's Morehouse College, a historically black school for men. The donation will pay off the student loans of all 2019 graduates. Some critics say these efforts are only a start, and that to reduce inequality businesses must work with the public sector. “We have to solve this as a country…. [We have to] maintain the American dream for everybody,” said Chuck Robbins, the CEO of tech giant Cisco. “Because where we are is not sustainable.” Others warn that philanthropy gives too much power to wealthy donors, thus exacerbating inequality. “Our society is increasingly dependent on the whims of big philanthropists,” said Rob Reich, faculty co-director of the Center on Philanthropy and Civil Society at Stanford University, which studies charitable giving and social change. “It leaves ordinary citizens out of the decision-making process.” — Tom Price
Go to top Technology companies have sparked booming economies in Seattle, San Francisco, Boston and other cities. But they also have contributed to a growing wealth disparity, according to economists and other experts. High-tech companies created 33,000 jobs in the Seattle area in 2016 and 2017, for example, the CBRE real estate firm reported. The area has benefited from that growth, according to University of Washington marketing professor Jeff Shulman. In addition to the high-tech employment, he said, the region has added “jobs at every level, [particularly] in terms of people moving here to serve” employees of online retail giant Amazon. But the pressure of the growing population has doubled the average cost of housing in the metro area over the past decade. Lower-paid workers — such as restaurant employees, maintenance personnel and child care providers — are forced to move to suburbs, and face long commutes on traffic-snarled roads, Shulman said. The relatively high salaries paid by tech firms also can make it difficult for smaller, less wealthy companies to hire workers, according to a report by Mark Muro and Jacob Whiton of the Brookings Institution and Robert D. Atkinson, president of the Information Technology and Innovation Foundation, a think tank focused on technology and public policy. A study by the Federal Reserve Bank of New York found that San Francisco, New York, Houston, Los Angeles, Dallas and Washington, D.C., are among the nation's 20 cities with the greatest disparity in incomes because of the wages paid to high-skilled workers. Such inequality exists not only within cities but also between cities, states and regions. Nationally, since 2012, residential land values in affluent, high-density cities such as San Francisco and Seattle have risen two and a half times faster than in rural areas. A Brookings study of the “Vitality Index” — an assessment of income, poverty, life expectancy, housing vacancy rates and unemployment — found that the most-rural areas had the lowest vitality scores. Technology's growing importance to the economy has left behind once-prosperous areas that relied on manufacturing or agriculture. Assembly-line workers who lost their jobs suffered pay cuts as they took work in the service sector. At the same time, highly educated workers clustered in big coastal cities, often filling technology jobs, according to economists. As larger companies absorbed smaller ones, smaller towns lost company headquarters as well as blue-collar employment. High-tech cities draw educated workers because such places offer the best jobs and recreation opportunities, according to Muro, Whiton and Atkinson. “It seems like everyone wants to live near each other because good restaurants will spring up, and there will be lots of interesting things to do,” says Josh Bivens, research director of the liberal Economic Policy Institute. Tech companies choose those cities because of the workforce, sophisticated suppliers and research institutions, the Muro-Whiton-Atkinson report said. Success then begets success, as more high-skilled workers, high-tech companies and investors follow. Conservatives such as Chuck DeVore, vice president for national initiatives at the Texas Public Policy Foundation, says this pattern of some communities prospering while others are left behind is part of the natural rhythm of a dynamic economy. He says efforts to alter this process are inappropriate and unnecessary. “This is a story as old as mankind,” says DeVore, a former aerospace executive and California state legislator. “The likelihood is in a few decades, there will be new wealth centers and places in the country that will be doing better than they are now.” Edward Conard, a visiting scholar at the conservative-leaning American Enterprise Institute, says a hands-off approach enables innovators to prosper and the economy to remain strong. But others say action is needed now to ameliorate this process. And even high-tech executives have recognized how their companies are hurting their communities. To discourage commuter-related road traffic, Amazon pays mass-transit fares for its Seattle employees. In 2015 it donated a former motel that it owned for use as a homeless shelter, and it will put housing for the homeless on eight floors of an Amazon building that is under construction. It gave $2 million to a fund that provides clothing, food and medical care for public school students. And it announced that it will donate $8 million to affordable-housing projects in Seattle and in Northern Virginia, where it is opening a second headquarters. Since last year, Facebook and Google each announced plans to give $1 billion for housing assistance in the San Francisco Bay Area, and Microsoft has pledged $500 million for housing programs in the Seattle region. The companies also are reducing demands on their headquarters towns by dispersing their operations. Apple said it will place new operations in Austin, Texas; Pittsburgh; Boulder, Colo., and other cities rather than at its headquarters near San Francisco. In addition to its planned Virginia headquarters, Amazon has opened 16 hubs around the country. Google said it is putting more than $1 billion into facilities in New York City. Facebook CEO Mark Zuckerberg said his company will increasingly be hiring outside of the Bay Area. The presence of Apple's campus in Cupertino, Calif., has helped drive up housing costs in Silicon Valley. (Getty Images/Bloomberg/Sam Hall) | Others have urged expanding high-tech magnets in the nation's interior. Muro, Whiton and Atkinson proposed a $100 billion federal program that would identify eight to 10 cities with a research university and a substantial number of residents with advanced degrees. Each of those cities would then receive some $700 million a year over 10 years in federal research and development funds. The proposal also urges government to reduce taxes and regulatory burdens in those cities. New high-tech centers are unlikely to spring up without federal action, Muro, Whiton and Atkinson said. Will Wilkinson, vice president for research at the Niskanen Center, a Washington think tank, has proposed creating federally chartered regional development banks that would sell bonds to finance infrastructure upgrades and research and development projects in economically disadvantaged areas. U.S. Rep. Ro Khanna, D-Calif., has introduced legislation to allocate $100 million for building 50 technology institutes, which would train workers in communities that have not benefited from the tech boom. Massachusetts Institute of Technology professors Jonathan Gruber, an economist, and Simon Johnson, a management scholar, said they have identified more than 100 communities in 36 states that are “plausible next-generation tech hubs.” — Tom Price
Go to top
Bibliography
Books
Boushey, Heather , Unbound: How Inequality Constricts Our Economy and What We Can Do About It , Harvard University Press, 2019. The president of the liberal Washington Center for Equitable Growth contends that inequality depresses the economy by denying society the potential contributions of its poorest members, who cannot get the education and opportunity they need.
Conard, Edward , The Upside of Inequality: How Good Intentions Undermine the Middle Class , Portfolio/Penguin, 2016. A visiting scholar at the conservative-leaning American Enterprise Institute argues that inequality results from a prosperous society rewarding its most valuable members. Attempts to eliminate the wealth gap, he says, would harm economic growth.
Kristof, Nicholas D., and Sheryl WuDunn , Tightrope: Americans Reaching for Hope , Alfred A. Knopf, 2020. A journalist (Kristof) and a banker and former journalist (WuDunn) offer a vivid portrait of life for those at the bottom of the economy.
O'Donnell, Edward T. , Henry George and the Crisis of Inequality: Progress and Poverty in the Gilded Age , Columbia University Press, 2015. Written by a historian at the College of the Holy Cross in Massachusetts, this biography of an economic reformer is also a history of the Gilded Age in the late 19th century, a period when inequality widened in the United States.
Oppenheimer, Andrés , The Robots Are Coming! The Future of Jobs in the Age of Automation , Vintage, 2019. A Pulitzer Prize-winning Miami Herald columnist predicts that machines will replace masses of workers, causing soaring unemployment and greater inequality — but a new prosperity will follow this upheaval.
Susskind, Daniel , A World Without Work: Technology, Automation, and How We Should Respond , Metropolitan Books, 2020. An economics fellow at Oxford University warns that artificial intelligence will enable machines to replace so many workers, it will end the “Age of Labor” and dramatically increase inequality.
Articles
Altman, Anna , “The Millennials Who Want to Get Rid of Their Class Privilege,” The Washington Post Magazine, March 2, 2020, https://tinyurl.com/rgrn5l7. Rich young people band together to help each other give away most of their wealth.
Fisher, Max, and Emma Bubola , “As Coronavirus Deepens Inequality, Inequality Worsens Its Spread,” The New York Times, March 16, 2020, https://tinyurl.com/w2b44pg. Journalists explore how the devastating coronavirus pandemic is heightening inequality.
Friedman, Milton , “The Social Responsibility of Business Is to Increase its Profits,” The New York Times Magazine, Sept. 13, 1970, https://tinyurl.com/yd9rza5t. The famed conservative economist makes his classic case that corporations should care primarily about their shareholders.
Goldstone, Brian , “The New American Homeless,” The New Republic, Aug. 21, 2019, https://tinyurl.com/yy446hpc. A journalist shows how one working mother's struggle to house her family fits into the big picture of homelessness in America.
Reports and Studies
“Statement on the Purpose of a Corporation,” Business Roundtable, Aug. 19, 2019, https://tinyurl.com/v8w4e7u. In an example of business leaders' growing concern about income disparity, elite American corporate executives reverse Roundtable policies to say companies should “deliver value” to their employees, customers and communities, not just to shareholders.
Atkinson, Robert D., Mark Muro and Jacob Whiton , “The Case for Growth Centers: How to spread tech innovation across America,” Brookings Institution, December 2019, https://tinyurl.com/vc5vtwz. To address inequality among U.S. cities and regions, analysts at the Brookings Institution (Muro and Whiton) and the Information Technology and Innovation Foundation (Atkinson) urge the federal government to spend $100 billion over a decade to create 10 new centers of high-tech industries in the heartland.
Hanushek, Eric A. , et al., “The Achievement Gap Fails to Close,” Education Next, Summer 2018, https://tinyurl.com/u6dwmg7. The authors — scholars of education and economics — reviewed a half-century of standardized test results to conclude that children from lower-income families have not closed the academic gap with their better-off counterparts.
Hipple, Liz, and Maria Monroe , “For Juneteenth: A look at economic racial inequality between white and black Americans,” Washington Center for Equitable Growth, June 17, 2019, https://tinyurl.com/rwcmwdk. Staff members at a left-leaning Washington research organization review studies on how economic inequality between whites and blacks has persisted since the end of slavery.
Go to top The Next Step Pandemic Scheiber, Noam, Nelson D. Schwartz and Tiffany Hsu , “‘White-Collar’ Quarantine Over Virus Spotlights Class Divide,” The New York Times, March 30, 2020, https://tinyurl.com/szfap5p. The coronavirus pandemic is dramatically exposing the economic and social divide between wealthy and poorer Americans, analysts say. Tensley, Brandon , “How coronavirus is deepening American inequality,” CNN, April 6, 2020, https://tinyurl.com/tfqw2yl. People of color are disproportionately affected by the pandemic because of underlying health conditions and their large representation in the service sector, according to analysts. Tomaskovic-Devey, Donald T. , et al., “How the coronavirus recession puts service workers at risk,” The Conversation, April 2, 2020, https://tinyurl.com/sy64vk4. Low-income service workers are at a greater risk of both infection and of losing their jobs during the pandemic-induced recession. Philanthropy Clifford, Catherine , “Andrew Yang's nonprofit giving out $1 million amid COVID-19 crisis, including $250-$500 checks via social media,” CNBC, March 20, 2020, https://tinyurl.com/snwyedf. Entrepreneur and former Democratic presidential candidate Andrew Yang's nonprofit plans to give at least $1 million to the working poor during the coronavirus pandemic, and other organizations plan similar measures. Orson, Diane , “Millennials And Charitable Giving: A New Approach To Philanthropy,” Connecticut Public Radio, Dec. 27, 2019, https://tinyurl.com/wcomwdf. To encourage charitable donations and reduce wealth disparities, Millennials are turning to apps. Schwab, Tim , “Bill Gates's Charity Paradox,” The Nation, March 17, 2020, https://tinyurl.com/rfgtmhw. Microsoft co-founder Bill Gates has given $2 billion in charitable donations to private companies tasked with helping the needy, including $250 million to businesses in which the Gates Foundation holds corporate stocks and bonds. Technology Kahn, Jeremy , “LinkedIn tries to improve equality across its site,” Fortune, March 31, 2020, https://tinyurl.com/rs7ujgv. LinkedIn is using a measure of income inequality to determine how many job listings are recommended to a user and how changes to the site will affect users. O'Brien, Fergal , “Tech Revolution Could Worsen Global Inequality,” Bloomberg, Jan. 19, 2020, https://tinyurl.com/tjtm5ly. The World Economic Forum warns that ongoing technological change could exacerbate economic disparities and limit social mobility. Porter, Eduardo , “A Few Cities Have Cornered Innovation Jobs. Can That Be Changed?” The New York Times, Dec. 9, 2019, https://tinyurl.com/wvdbqtg. A study found that 382 metro areas lost technology jobs between 2005 and 2017, while Boston, Seattle, San Diego, San Francisco and Silicon Valley got nine out of 10 jobs — a development that contributed to inequality among regions and localities. Wealth Disparity Phan, Sam , “Wealth gap widening for more than 70% of global population, researchers find,” The Guardian, Jan 22, 2020, https://tinyurl.com/up5hj59. More than 70 percent of the global population lives in countries where the wealth gap is growing, partially due to top income tax rates that are decreasing. Schaeffer, Katherine , “6 facts about economic inequality in the U.S.,” Pew Research Center, Feb. 7, 2020, https://tinyurl.com/s7cq2lu. The wealth gap between the richest and poorest Americans has more than doubled since 1989. Schneider, Mike , “Census: US inequality grew, including in heartland states,” The Associated Press, Sept. 26, 2019, https://tinyurl.com/yycuw8ku. The income gap continues to worsen in the United States, in part because of generational factors: Members of the large Baby Boom Generation, who are at the peak of their earnings, are still working while Millennials and Generation Z-ers, who earn lower salaries than their elders, are in the early stages of their careers. Go to top Contacts American Action Forum 1747 Pennsylvania Ave., N.W., 5th Floor, Washington, DC 20006 202-559-6420 americanactionforum.org Conservative research and advocacy group that publishes economic analysis. American Enterprise Institute 1789 Massachusetts Ave., N.W., Washington, DC 20036 202-862-5800 aei.org Conservative-leaning think tank that includes economic mobility among its research interests. Brookings Institution 1775 Massachusetts Ave., N.W., Washington, DC 20036 202-797-6000 brookings.edu Centrist think tank that researches a wide range of issues, including inequality. Council of Institutional Investors 1717 Pennsylvania Ave., N.W., Suite 350, Washington, DC 20006 202-822-0800 cii.org Association of investors that represents private and public pension funds and says business executives should focus solely on the interests of shareholders. Economic Policy Institute 1225 I St., N.W., Suite 600, Washington, DC 20005 202-775-8810 epi.org Liberal think tank that focuses on the needs of low- and middle-income workers. Georgetown Center on Poverty and Inequality 600 New Jersey Ave., N.W., Washington, DC 20001 202-662-9000 law.georgetown.edu/poverty-inequality-center Division of Georgetown University Law School that researches and advocates for policies to ameliorate poverty and inequality. Hoover Institution 434 Galvez Mall, Stanford University, Stanford, CA 94305-6003 650-723-1754 hoover.org Conservative-leaning think tank that researches and advocates ideas designed to promote economic opportunity, prosperity and peace. Washington Center for Equitable Growth 1156 15th St., N.W., Suite 700, Washington, DC 20005 202-545-6002 equitablegrowth.org Liberal think tank that focuses on inequality. Go to top
Footnotes
Go to top
About the Author
Tom Price, a contributing writer for CQ Researcher, is a Washington-based freelance journalist who previously was a correspondent in the Cox Newspapers Washington Bureau and chief politics writer for The Dayton Daily News and The (Dayton) Journal Herald. He is author or co-author of five books including, with former U.S. Rep. Tony Hall, D-Ohio, Changing The Face of Hunger: One Man's Story of How Liberals, Conservatives, Democrats, Republicans and People of Faith Are Joining Forces to Help the Hungry, the Poor and the Oppressed. His previous CQ Researcher reports include examinations of race in college admissions, child welfare and corporate responsibility.
Go to top
Document APA Citation
Price, T. (2020, April 17). Inequality in America. CQ researcher, 30, 1-59. http://library.cqpress.com/
Document ID: cqresrre2020041700
Document URL: http://library.cqpress.com/cqresearcher/cqresrre2020041700
|