Perhaps the most direct way to measure how much ground working-class Americans have suffered in the past four decades is “wealth inequality.”
“Income inequality” is important; income dictates how we live day to day. But wealth dictates how we will live after our work life ends, and also how our heirs will live in the future. Wealth is the money we live on in retirement; the money we have for a down payment on a house; the money we have for school tuition; the money we can loan to a child to help them get started in life.
In 1983, 60% of total U.S. wealth was owned by the wealthy, 32% by the middle class, and 7% by lower income folks. By 2016 those numbers had shifted to 79% upper income, 17% middle class, and 4% lower income. In 18 years, 18% of total wealth had shifted from middle- and lower-income folks to the wealthy. Based on today’s total U.S. net worth of over $140 trillion that would represent a wealth transfer of $25 trillion, or over $80,000 for every man, woman, and child in the bottom 90% of earners.
The drivers of wealth inequality are simple. In a capitalist society, wealth wants to spiral upward. All businesses fight to increase profits, and profits belong to the company’s shareholders and executives. Since 1975, thousands of companies have moved from high-cost, union factories to lower-cost foreign or non-union factories. In every instance, the result was the same. The company’s costs went down, their profits went up, shareholder value and executive pay went up, and workers were displaced.
Other countries have transitioned to globalized markets and labor in a way that has produced much less income inequality. The U.S. is last among the G7 nations in this area. The U.S. also ranks quite low (16th) on the annual “happiness” survey which assesses how people around the globe feel about their lives. One particular group of Americans, white men without college degrees, struggle enough that the life expectancy of the whole group has been dropping for years, mainly due to deaths by drugs, suicide and alcohol addiction. The gap between this group and their wealthier peers has now reached a stunning 13 years.
Other nations slow the growth of income inequality by raising taxes on the wealthy in order to produce a fairer society with stronger social safety nets. The U.S. on the other hand, cuts taxes. The biggest legislative achievement for either the Reagan, Bush II, or Trump administrations was the same … a huge tax cut.
From 1936 until 1981, the top incremental tax rate was between 70% and 91%. From 1982 to 1986 it was 50%. And, since 1987 the rate has been as low as 28% and no higher than 39.6%. Republicans talk about going back to “better days.” But during those better days of strong unions and high wages, tax rates for the wealthiest were 30 to 50 points higher! Shouldn’t going back to better days mean raising taxes on the rich?
The primary tool that government has to constrain wealth is to raise taxes and use the revenue to offset income and benefit losses for workers. Three things that could instantly change the lives of working Americans would be affordable health care (meaning low or no deductibles), subsidized child care (so both spouses can work), and improved Social Security, or a new form of retirement savings.
Right now, none of these things can happen. The reason is that a large segment of workers themselves vote for politicians who are committed to blocking these very actions. Until that changes, we can all just sit back and watch to see who will be the first trillionaire. The race is already on.
John Sedgwick of Duluth is a retired marketing director for Honeywell.