Written by Nick Licata | Originally published 8/24/2021
lumber baron William Carson’s Victorian Mansion built 1886 – photo by N. Licata
Over the past year, new research has shown how a phenomenal accumulation of wealth has become concentrated among just 1 percent of Americans over the last four decades.
If that trend continues, our future as a democracy will come to an end. So, the first step is to recognize it, and the second is to address it now.
This trend was quantitively demonstrated in a RAND Corporation paper, Trends in Income From 1975 to 2018 by Carter C. Price and Kathryn Edwards. They used a time-period agnostic and income-level agnostic measure of inequality that relates income growth to economic growth. A summary and commentary of their work by Nick Hanauer And David M. Rolf is readily accessible to the public in Time.
The RAND study shows how from 1947 through 1974, real incomes grew close to the rate of per capita economic growth across all income levels. Since then, Americans whose wealth was already in the top 1 percent have received a much larger share of our nation’s economic growth. At every income level up to the 90th percentile, wage earners receive only a fraction of what they would have received if the inequality ratio had held constant from 1974.
In real wages, this means that an employee today with a median individual income of $36,000 would receive an additional $28,000 using the CPI as a measurement of growth. That comes out to an additional $10.10 to $13.50 an hour on top of the current wage.
Critics point out how the growing gap in wealth among Americans is not a random economic trend but a politically driven plan to protect a select group’s capital and their ability to increase it through manipulating our democratic decision-making process.
Political scientists Jacob S. Hacker and Paul Pierson, in Let them Eat Tweets: How the Right Rules in an Age of Extreme Inequality, argue that the Republican Party has merged plutocratic economic priorities with a right-wing populist appeal that threatens American democracy. In a YouTube interview referencing decades of research, Hacker and Pierson explain the doom-loop of tax-cutting that characterizes the Republican strategy.
Sen. Sheldon Whitehouse believes that approach is undermining our democratic government. His presentation during the confirmation hearings of Amy Coney Barrett to the U.S. Supreme Court details how untraceable money from people “with practically unlimited resources have [manipulated] that most precious of American gifts—the vote.” It’s not just the popular vote they are attempting to control but also the votes in Congress to protect and expand their wealth.
A ProPublica piece by Justin Elliott and Robert Faturechi Secret IRS Files Reveal How Much the Ultrawealthy Gained by Shaping Trump’s “Big, Beautiful Tax Cut” uncovered confidential IRS records. They show billionaire business owners deploying lobbyists to make sure Trump’s 2017 tax bill was tailored to their benefit.
Wisconsin Republican Sen. Ron Johnson threatened to vote “no” on Trump’s tax cut unless it included a pass-through provision as tax relief for “small businesses.” The reporters connected that tax break to two families of the largest donors to Johnson’s and Trump’s campaigns. They contributed around $20 million just to groups backing Johnson’s 2016 reelection campaign. That is a lot of money, but they also netted $215 million in tax deductions in 2018 alone from Johnson, altering Trump’s original tax-proposed package. Elliott and Faturechi’s finding was based on lobbying and campaign finance disclosures, Treasury Department emails and calendars obtained through a Freedom of Information Act lawsuit, and confidential tax records.
Why haven’t revelations like these prompted a populist movement to redirect these types of tax benefits to the shrinking middle class? Unfortunately, that potential political movement has been hindered by a narrative, primarily pushed by the Republicans, that any increase in a tax will lead to less money in the average voter’s pockets and less freedom in their daily lives. Republicans adhered to that message in opposing any new tax on the wealthiest to help fund President Biden’s legislation investment in our dilapidated infrastructure, disregarding that it would have created a more robust economy and more significant employment opportunities.
A tax on the top 1% or even the top 10% of the population does not lessen the income of wage-working families. However, the growing wealth gap is not seen as important by those families. Polls of voters show that the distribution of wealth lands near the bottom of their concerns. This attitude may be partly due to the perception that to close this gap, socialism would result, which the Republicans repeatedly link to the authoritarian governments of Russia or China.
However, the two biggest communist governments in the world are experiencing the same growing wealth gap within their populations as the largest capitalist country in the world. Why is that? Even though Russia and China pledged to create an egalitarian society and the U.S. professes to protect individual freedoms, all three have removed or reduced regulations on their domestic market that would stop elites from monopolizing it. These elites may come from inherited wealth or political party status or just individuals working within each country’s economic system. The result is the same: a concentration of capital resources among fewer people is happening in both communist and capitalist countries.
For a moment, let’s look at what is happening in Russian and China. The grandest and longest experiment in eliminating the excessive concentration of wealth would be the Soviet Union. As the Soviet economy was formed, the royalty and the farmers who owned their land were stripped of their property, if not personally eliminated, because they hindered the creation of an egalitarian society. In some ways, that objective was achieved. For example, in the 1970s, the Soviet Union was heralded as a nation that had succeeded in providing more housing for its citizens than the U.S.
However, thirty years later, a new wealthy elite has emerged that rules Russia. Timothy Snyder, in On Tyranny, argues that the Russian oligarchy came to power after 1990 due to the efforts of President Vladimir V. Putin. They remain in control, not only destroying that country’s democracy but working to destroy democracies elsewhere.
China, the world’s largest “communist” nation, and like Russia communist in name only, is now struggling with how to contain its wealthy oligarchy, according to an article in Foreign Affairs by Anko Milanovic, a professor at the London School of Economics. Milanovic believes that “Inequality has become the Chinese system’s Achilles’ heel, belying the government’s nominally socialist tenets and undermining the implicit contract between the rulers and the ruled.”
The number of billionaires in Russia and particularly China has mushroomed. Beijing has more billionaires than New York City. If Hong Kong is politically merged with China, the U.S. will drop behind China in the number of billionaires. Russia currently has the fifth-largest number of billionaires in the world. Neither China nor Russia come close to having a democratic government or society, so the public has limited opportunity to close their wealth gap.
Some historians argue that there will always be some variation in the distribution of wealth in a society. In Sapiens A Brief History of Humankind, Yuval Noah Harari notes that it may have begun when agriculture replaced foraging about 10,000 years ago. The resulting surplus food begat a “pampered elite.” Promoting the concentration of wealth in a society is rarely acclaimed as a goal by the rulers. Nevertheless, a history of revolutions initiated by the disenfranchised seems to always result in sustaining some noticeable gap in wealth among the population.
So, what is to be done about America’s growing disparity in wealth? As long as we have a functioning democracy that allows the public to shape our laws effectively, we can halt the growth of the existing wealth disparity and even reverse it. Our political parties must educate the public that it takes resources to maintain a stable society.
When the wealthiest do not contribute their fair share of resources, that society will witness populist movements pushing for radical and usually expedient but undemocratic changes. Coming from either the left or the right, they will support more opportunities to improve people’s lives. But, without a solid democratic framework that promotes the civil rights of all citizens, like encouraging the right to vote, their changes will not halt the emergence of powerful, wealthy elites, as is what is happening in Russia and China today.
The path forward is through establishing a fair tax structure to stop excessive wealth, and hence political power, from being accumulated by just a sliver of the population. There must be a tax system that does not reward speculation more than wage labor, as ours does now. Any political party stubbornly resisting a tax on those ablest to pay is traveling a fool’s journey into a long dark tunnel with no satisfying end in sight.