Top Heavy: Wealth Inequality Is Even Worse Than Income Inequality

By Morris, Charles R. | Commonweal, March 10, 2017 | Go to article overview

Top Heavy: Wealth Inequality Is Even Worse Than Income Inequality


Morris, Charles R., Commonweal


Income inequality was a hot-button issue in the run-up to the November election, but it was swept under the carpet when the working classes opted for an apparently strong leader in the Putin and Mussolini mold of dema-goguery. It remains to be seen how that choice will play out across a broad range of policy issues, but the tax proposals that President Donald Trump and the Republicans are offering are heavily weighted toward increasing after-tax incomes for the very wealthiest people. Those windfalls will almost certainly be financed by cuts in health care, tuition aid, and income support for the lower half of earners.

Wealth inequality, or a household's net assets, is even more skewed toward the upper crust than income inequality is, and is arguably the more important index. It is a household's assets that provide the fallback for episodes of unemployment, serious illnesses, and other life crises. In today's United States, the wealth share of the richest has been growing by leaps and bounds, to the point where the top tenth of one percent of households holds a substantially larger share of wealth than the bottom 90 percent. Virtually all the wealth of the bottom 90 percent is held by those in the 50 to 90 percentile groups, so the bottom half of the population has essentially no wealth at all.

The inequality debate has usually been framed in terms of incomes, due to the work of two economists, Emmanuel Saez and Thomas Piketty. They have developed complete datasets on the pretax incomes of the country's top earners from 1913 to the present that highlight the shockingly large share of the national income that goes to very small slices of the population.

Statistics on wealth are much more difficult to collect. Tax returns show taxable interest, dividends, and capital gains, but not the underlying accumulated assets. But Saez and a colleague, Gabriel Zucman, have recently produced an impressively complete set of wealth statistics primarily by applying "capitalization ratios" to the capital income in the tax data. For example, if a household listed $1,000 in interest income, and the average interest paid in that class of asset was 5 percent, then that suggests that the household has $50,000 in interest-bearing securities. The true virtuoso work, however, is the assemblage of non-tax data to capture the value of assets that do not pay current income, like a house or a pension. …

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