U.S. Inequality Reaching Record Highs, Requires Policy Shift

Interview with Sam Pizzigati, Institute for Policy Studies associate fellow, conducted by Scott Harris

According to data from the U.S. Census Bureau, income inequality last year reached its highest level in more than 50 years. The widening gulf between the rich and the rest of the country came as a record-long economic expansion continued, but disproportionately benefitting the nation’s wealthiest families.

The Gini index measures wealth distribution, and Gini’s recent reading for the U.S. of 0.485 is the highest reading since the Gini index was started in 1967.  Jay Powell, the chairman of the Federal Reserve, has echoed concerns about economic mobility in the U.S. In February, he said that income inequality would be one of the biggest challenges facing the U.S. over the next decade. He said, “We want prosperity to be widely shared, and we need policies to make that happen.”

Between The Lines’ Scott Harris spoke with Institute for Policy Studies Associate Fellow, Sam Pizzigati, who talks about the Census Bureau report and other indicators of rising economic inequality, as well as policy options to reverse the continuing upward trend in wealth disparity.

SAM PIZZIGATI: People think about the every 10-year census, but actually the Census Bureau researchers are working every year and every year they produce an economic income report. And this latest report released in September, concludes that inequality has grown to its highest level in more than 50 years of tracking income inequality in the United States. The report also shows that this century, the 21st century, has not been a good one for ordinary households in the United States. Our median household income – that’s the income of the most typical American families adjusted for inflation – the typical American household is earning 2.3 precent less in income than than these households earned in the year 2000. So average households this century are going backwards. So, that’s the first of these sort of blockbuster reports.

The second one, I had a hand in, along with my colleagues at the Institute for Policy Studies. We looked at CEO compensation in major U.S. corporations last year and in 2018 we found that last year there were 50 major U.S. corporations that paid their chief executives, their CEOs, over 1,000 times the compensation that went to their median or most typical workers – over 1,000 times, which is a horrific statistic. So that’s the second sort of report that we’ve been trying to highlight. Then the third comes from two economists at the University of California, Berkeley – Emmanuel Saez and Gabriel Zucman. They have done some deep digging into the historical records and some fabulous research. And they found last year, the 400 richest households in the United States paid taxes – combined local, state and national taxes – at a lower rate than any other income cohort in the nation.

That’s the first time that’s happened since the modern federal income tax went into effect in 1913. To be more specific, in 2018, last year for the richest 400 households in combined taxes of at the federal, state and local level, they paid, these richest 400 households, paid 23 percent of their total income in combined taxes. Meanwhile, households in the nation’s poorest 50 poorest. In other words, the poorest half of American households, they paid combined taxes at an average 24.2 percent rate higher than the 400 richest households. In other words, we no longer have anything close to a progressive tax system in the United States.

BETWEEN THE LINES: Sam, both Vermont Sen. Bernie Sanders and Massachusetts Sen. Elizabeth Warren had been talking about economic inequality in their campaign this year – Bernie in 2016, – about inequality and how our nation should address it. If you were to advise these two candidates or the general public about what steps could be taken to most effectively confront and hopefully change the rising inequality we see in the United States, what policies would be most important in your mind?

SAM PIZZIGATI: We have to look at this from the traditional perspective of redistribution. And that is using the tax system to redistribute income and wealth. Those high marginal tax rates that we’ve been talking about served to do that in the past and we need those. And, we need to put those back into place and we need to put them back into place more imaginatively. So things like a wealth tax, come into play here. Right now we do have a wealth tax in the United States. It’s called a property tax. And if you’re a middle-class homeowner, you pay a property tax. You pay a tax on the main source of your wealth, which is your home. But for very, very wealthy people, the main source of their wealth is not their home. It’s their sum total of their financial assets – the millions and billions they have in stocks and bonds and commercial real estate. All those stocks and bonds and financial assets that they have – face no tax.

So what we need, as both Elizabeth Warren and Bernie Sanders are calling for, is a wealth tax. Redistribution is not enough. We need an economy that generates a more equal outcome. And to get the first thing we need is a strong labor movement. In the middle of the 20th century, we had a strong labor movement and that served to keep rewards at the top within bounds. In 1950s, over one out of every three workers in the United States carried a union card. Today in the private sector, less than 7 percent of workers carry union cards. We need to change labor laws. Make it easier for workers to join unions and that’s a key part of a pre-distribution strategy.

For more information, visit Institute for Policy Studies website at inequality.org.

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