Deciding how much equality America can afford

previously published in the Terre Haute Tribune Star, 14 June 2015


How much are we willing to pay for equal opportunity? Cultural values are ideas that are broadly held that people use to decide what is good, right, proper and just. As individuals, we typically do this as part of “common sense.” In public policy, we often find we need to balance competing or even conflicting values.
                                                                                                                                                                                                                                                                                 
Individuals are faced with resolving competing values. For instance, family is a common value, as is hard work and material success. Yet, devotion to family can be challenged by demands of the workplace, and workplace success can be challenged by family obligations. Individuals typically find a balance that works for them, and different individuals will balance those competing values differently. Sometimes a promotion is turned down for family reasons. Public policy, however, does not generally permit each of us to have our own policy.

There is much discussion over the last few years about rising economic inequality in the United States. There is no question that economic inequality, as conventionally measured, is increasing; the effect of its rise is beginning to add up and is undermining structures that create equal opportunity, such as education, enrichment programs, access to tutoring, even “middle class values.” Without making measurement the subject of this essay, trust me when I say, if we examine wealth, the picture is even worse. Income, even today, is distributed far more equally than wealth.

Policies impact economic inequality. Progressive income taxes reduce it. The tax changes ushered in by President Reagan in the early 1980s, that reduced income tax progressivity, led scholars at the time to predict a rise in income inequality. The busting of the Professional Air Traffic Controllers Organization (a union) by President Reagan signaled a tilt in public policy against unions. Changes since then, at both the federal and most states levels, such as reducing income taxes, property tax caps, and so-called right-to-work laws all contribute to increasing income inequality.

Do Americans no longer value equal opportunity? I see no evidence of that. Many would argue that the rich and corporations have bought our politicians. While the rich have always had a disproportionate ability to influence politics, I think what has happened is a slow and until recently not-so-noticed tilt of the balance in favor of another core American value: Wealth creation or free enterprise.

Just as individuals can value equally their family and their work, in reality people try to balance them but it’s difficult. At different times individuals may tip the scales in work’s favor and family is neglected. At other times family demands may result in missed opportunities at work. For nearly 40 years America’s public policy has favored the value of wealth creation and free enterprise over equal opportunity. Just as some individuals over time spend increasing time at work and less with family, they only realize it when they don’t know their kids and have missed those milestone moments because of work.

The undermining of equal opportunity in the U.S. is finally so glaring that researchers can predict individual’s economic place based on the zip code they grew up in. When one’s origin is that predictive then the reality of equal opportunity is nothing more than a myth.

Progressive income taxes, higher taxes on capital gains, inheritance taxes, robust unions, social safety nets, especially Social Security, and public education among others all help create the reality of equal opportunity. Those things also reduce the creation and accumulation of private wealth; in short, they reduce the efficiency of the economy. Taxes transfer potential private wealth into the public sphere where it can be used to maintain the reality of equal opportunity.

There is no question that reducing taxes, especially on the rich, weakening unions, hammering away at all things public, especially education which is often the largest portion of state budgets, will increase the efficiency of the economy and the creation of private wealth but at a social cost of greater inequality. Virtually all Americans would agree that equal opportunity is valued and so is free enterprise and wealth creation. The challenge is in balancing the two.


Perhaps the 2016 election will provide a platform for just such a debate. Savvy listeners will hear it but don’t expect the candidates to admit that their favored policy positions have any downside whatsoever, any costs to either economic efficiency or to equal opportunity. Every voter will, in essence, be deciding how much equality America can afford.

Top 1 Percent Holds More Than Third of Wealth

Previously published in the Terre Haute Tribune-Star 10June 2012

My last essay focused on growing income inequality and its demonstrated relationship with a range of social ills. This month I want to focus on wealth inequality. All statistics are taken from the work of Edward Wolff.

Income (conventionally defined) is money received in the form of wages, salaries, tips, alimony, welfare, interest and some dividends. For the most part, income is derived from employment —work. And for a brief period last fall, the press and the political bloviators discussed the graph showing the increasing concentration of income among the top 1 percent compared to the 99 percent.

Wealth is one’s (or one household’s) net worth, the sum total of cash on hand, the value of real estate, assets, stocks, bonds, and ownership of private business(es) minus debt. For the vast majority of people, the 90 percent, one’s home is their primary financial asset.

Whatever people think or believe about the state of income inequality, wealth inequality is far more striking. Wealth, since the 1970s, has become increasingly concentrated at the top. The most recent data on the distribution of wealth is from 2007 (new data should come out in 2013) and it shows that the top 1 percent owns 34.6 percent of the total wealth (it was in the 20s in the early 1970s). In contrast, the share of the top 1 percent of income earners was “just” 21.3 percent in 2007.

“Millionaire” still retains high status in the U.S. Despite popular views that millionaires are common, according to IRS figures for tax returns filed in 2009, only 0.1 percent of tax returns filed (among 235 million) had incomes of at least one million dollars. It is one thing to earn a million a year, another to have total assets of at least one million, and in 2007 just over 6 percent of households had net worth that high. Indeed, when we examine the bottom 40 percent of households, their mean net worth is just $2,200.

Wealth differs from income in terms of the social power it confers. Wealth is transferable. A job/career is not. If I inherit a business, I can hire my relatives, including my children, to work the business and can eventually pass the business on to them, but not my job. As I have written in these pages before, the employment relationship is a significant one and it is asymmetrical with respect to social power.

Many argue that taxes on wealth should be reduced, if not eliminated. The argument goes that those who obtain money through their wealth (by investing in stocks, businesses, etc.) are risking their property and deserve to reap the rewards and should not be punished with a high tax rate. Hence, the 15 percent tax rate on capital gains (the selling of an asset and making money on it). Too bad I can’t auction off my job to the highest bidder when I decide to vacate it. My income is taxed at 28 percent. If I could sell my job, it would be taxed at 15 percent.

The amazing thing about risking one’s capital in business is that it gets others working for you. In the private sector, a job is not a gift or something miraculous that rich folks provide when they are happy, as the current rhetoric of “job creator” practically suggests. Business owners don’t create jobs to be civic-minded. Rather, businesses create jobs as a way to make money. Anyone who works in the private sector makes money for the company or provides some kind of valuable service or their job disappears. Unless a business owner has poor business skills, they are only going to create a job when there is a chance to make money for the business.

In 2007, the top 1 percent owned 49.3 percent of all stocks and mutual funds, 60.6 percent of all financial securities, 38.9 percent of all trusts, 62.4 percent of all business equity, and 28.3 percent of all non-home real estate. In short, they owned 49.7 percent of the productive assets in the United States.

Work in the private sector and it’s a 50-50 chance your job helps enrich someone in the top 1 percent.