Mind the Wealth Gap, it Could be Fatal to our Democracy

There’s no debate. In the United States, income and wealth inequality have skyrocketed in the past 40 years, with wealth becoming concentrated in ever fewer hands.

Here are some telling statistics:

  • In 1989, the top 10 percent of families in the U.S. controlled 67 percent of the wealth. The bottom 50 percent of families controlled 3 percent of the wealth, according to the Congressional Budget Office. In 2013, the top 10 percent control 76 percent, and the bottom 50 percent control 1 percent.
  • The top 1 percent control 40 percent of the wealth in the U.S., which is far more than in any other country. For instance, in France, the United Kingdom, and Canada, the top 1 percent control only 20 percent of the wealth. And in Finland, the top 1 percent control only 13 percent of the wealth.
  • The average CEO in the U.S. earns 312 times more than the average worker. In 1965, CEOs earned only 20 times more than their average employee.

Why is the wealth gap expanding, and why so much more in the U.S.? Working class Americans didn’t stop working harder. In fact, we’re more productive than we’ve ever been. So what gives? Many argue that it’s just the winner-take-all nature of global capitalism. But then why is wealth distribution in Europe, Australia, New Zealand, and Canada so different from here? Similarly, why do CEOs make less money in countries outside the U.S.?

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The answer, of course, is obvious: government policy. The U.S. has consistently cut tax rates for the wealthy over the past six decades. In the 1950s, the top marginal tax rate was 91 percent. Now? It’s 37 percent. Corporate rates are even lower, with many blue chip companies paying an effective tax rate of five or ten percent on hundreds of millions or billions of dollars of profit—if not getting refunds. Other tax policies have helped the wealthy at the expense of the middle class and the poor. The estate tax has been slashed. And capital gains taxes—typically only paid by the rich—are a fraction of income taxes.

The implications of tax policies that pamper the already rich are deadly serious. They expand the wealth gap, which the Organization for Economic Cooperation and Development (OECD) believes shaved 5 percentage points off economic growth between 1990 and 2010. Eras with wealth gaps this extreme have all led to extreme economic collapses. Case in point: the Great Depression, which economists widely blame on the wealth disparities that accelerated during the 1920s. This economic catastrophe was only ended by the horrors of World War II. Another economic and human disaster may soon be in the offing due to the soaring federal deficit, low interest rates, and rampant income inequality.

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When wealth gathers in the hands of a few, the government is starved for funds and scales back on programs that help the many. The cost of college education, for instance, has skyrocketed as governments at the federal, state, and local level have slashed public university funding. This slams blue collar and middle class parents hard: they are forced to drain retirement accounts and take on crippling loans to pay for college. This supremely short-sighted policy hits everyone who isn’t among the super wealthy, hard.

The problem is the super wealthy can now influence policy that protects their wealth more than ever before—out of all proportion to their actual votes. That’s because of the Supreme Court’s Citizens United decision, which enabled the wealthy to donate unlimited funds to politicians and pet causes. Politicians need money to get elected. To keep the greenbacks flowing once they do get elected, politicians vote for policies that favor their donors (enabling these donors to become even wealthier). This system leads to policies that hurt the majority of the country to favor the few.  

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This is not theory. Policy is making the rich richer. The Trump tax cuts are a prime example, permanently slashing taxes for corporations from 35 percent to 21 percent. In 2025, a quarter of tax benefits will go to the wealthiest 1 percent of Americans, and 66 percent will go to the top 20 percent of earners. Supposedly these tax cuts will see economic prosperity “trickle down” to the middle and working classes. In reality, corporations are using their excess cash not to invest in new plants, hire more workers, or pay their employees more. No, they are buying back stock at staggering rates, artificially inflating stock prices and massively benefitting the CEOs and other executives who receive much of their compensation based on stock prices.   

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The most insidious effect of income inequality may be expanding distrust in our institutions. Cynical politicians try to sell us on the lie that the economic impact will trickle down, but it never does. Surprisingly enough, money tends to stay in the pockets of whoever you give it to. Clearly, top levels of government are in the bag for the richest of their donors. Because of this, Americans so distrust our government that they don’t even bother to vote. Many believe that showing up to the polls won’t change anything, so they stay home, or go to their second or third job, instead of showing up at the polls. Or if they do vote, they commit an act of political vandalism in the voting booth and elect one of the most clearly unqualified men in history as president of the United States.

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That’s how bad the income and wealth gaps have made things now. And it could get a whole lot worse—if you don’t make your voice heard at the ballot box.  

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