The Wealth Inequality Virus Persists

Photograph by Nathaniel St. Clair

In recent decades, during both normal and abnormal times, economic inequality in the United States has been increasing.

The Federal Reserve Board recently released its figures on wealth distribution in the United States as of the end of March.[1] The wealthiest 1% are presumably quite happy.  Their wealth increased $2.01 trillion to $41.52 trillion in the first three months of 2021, an increase of more than 5%.

Presumably, a disproportionate share of the increase has gone to those at the very top of the 1%. In 2020, according to the Federal Reserve figures, the wealth held by the 1% increased 14.88%.  However, using the Bloomberg Billionaires Index figures, in 2020, the wealthiest ten U.S. citizens, as of the end of the year, saw their wealth rise 47.9% bringing their total to $1.0685 trillion from $730.29 billion at the beginning of the year. The total holdings of the wealthiest ten as of the end of 2020, according to the Bloomberg Billionaires Index, represents 2.69% of the total holdings of the wealthiest 1% using the Federal Reserve figures of their holdings then. This is up from 2.12% at the beginning of 2020.

These figures signify that among the wealthiest 1%, inequality is widening between the wealthiest of the wealthy and the rest of the 1%.

While the size of one’s wealth fluctuates all the time, according to the Bloomberg Billionaires Index, as of June 23, 2021, the ten wealthiest U.S. citizens had experienced an increase in their wealth since the start of the year of $166.79 billion for a gain of 15.7%.

During 2020, Musk’s wealth increased $142 billion and Bezos by $75.4 billion. The biggest winners so far this year have been Larry Page whose gain in wealth is $29.7 billion and Sergey Brin at $28.5 billion, both connected to Google, with Facebook’s Mark Zuckerberg coming in a distant third with a gain of $23.3 billion. However, Zuckerberg’s total holdings still remain ahead of Page and Brin at $127 billion compared to their amounts of $112 billion and $108 billion.

Still leading the pack of multi-billionaires and having broken the $200 billion barrier is Jeff Bezos at $202 billion followed by Elon Musk at $180 billion and Bill Gates at $145 billion. Luckily for Gates, even if his divorce forces him to give up half of his wealth, at this point, both he and his soon to be ex would remain in the top 10 among U.S. citizens.

Internationally, the biggest winners so far in 2021 are Bernard Arnault from France whose wealth has shot up $58.5 billion to $173 billion and Gautam Adani, described as an industrialist from India. His wealth has almost doubled by increasing $32.5 billion to total $66.3 billion.  As the pandemic raged in the U.S. in 2020, many of the wealthiest Americans experienced huge windfalls (see table further below.)  Adani may be having the same experience. His wealth grew rapidly as India experienced a spike in the pandemic although his wealth increased by $22.5 billion in 2020 to $33.8 billion by the end of the year.

Here are figures from the Federal Reserve Board that allow one to compare the success of all recent administrations at enabling the wealthy to accumulate not just more wealth, but a greater share of the country’s total wealth during their time in office:

The first year cited for each president is their first quarter in office (except Bush Sr. since the table starts at the third quarter of that year.) The last year is the 4th quarter of that year. 2007 for Junior Bush is the third quarter in 2007, the highest level of inequality during his regime and before the effect of the great recession. 2019 for Trump is for the last quarter of that year to illustrate that by the end of 2020, despite the pandemic and the decline in the first quarter, the wealth of the 1% increased over $5 trillion, more than 14.88%.

These Federal Reserve numbers are constantly revised and may differ from numbers I cited in previous articles.

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Are the Poorest 50% Doing Better?

One might conclude that the poorest 50% have recently made progress in that their wealth holdings quadrupled since Obama took office. The difference in the wealth of the 1% in comparison to the poorest 50% shows signs of declining.  The net wealth of the 1% was more than 23 times greater than that of the poorest 50% at both the beginning and end of Obama’s presidency.  In the first quarter of 2021, the wealth of the wealthiest 1% is less than 16 times greater than that held by the poorest 50%.

Presumably, the relative recent gain of the poorest 50% is a function of the higher valuation of real estate held by those among their members who own it.

According to the Federal Reserve figures, when Obama became president in 2009, the real estate holdings of the poorest 50% were valued at $3.28 trillion. They carried home mortgages of $3.5 trillion meaning they were underwater. Had they sold all of their real estate to pay off their mortgages, they would still owe money.

In the first quarter of 2021, the poorest 50% real estate value stood at $3.87 trillion with a mortgage total of $2.45 trillion meaning that the net worth of their real estate was $1.42 trillion or $1.64 trillion more than in the first quarter of 2009 when it was negative $.22 trillion.  $1.42 trillion accounts for over 54% of their total wealth as of the first quarter in 2021 which, for most, presumably stands for the value of a basic need, the roof under which they live.[2]

Take out the net value of the poorest 50%’s real estate, and their net wealth comes to $1.2 trillion compared to $.88 trillion in 2008 when Obama took office during the great recession.  Removing the net value of real estate results in the value of the wealth of the poorest 50% increasing just 36% since Obama became president.  That increase is much lower than the 400% increase when the net value of their real estate holdings are included as of the first quarter of 2021.

Take out the net value of the real estate for the richest 1% and the poorest 50%, and the remaining wealth of the 1% as of the first quarter of 2021 is over 30 times greater than the holdings of the poorest 50%. When Obama took office, it was about 15 times greater.

The above suggests that any significant improvement in the wealth of the poorest 50% compared to the 1% is an illusion.

Since the beginning of 2020, the wealth of these ten people is up over 68%.

Executive Salaries and Wealth Inequality

Much is made of the excessive and rapidly increasing incomes of corporate executives relative to the income of their typical paid workers.

Reported in an April 21 New York Times article  with the headline:  C.E.O. Pay Remains Stratospheric, Even at Companies Battered by Pandemic

“Chief executives of big companies now make, on average, 320 times as much as their typical worker, according to the Economic Policy Institute. In 1989, that ratio was 61 to 1. From 1978 to 2019, compensation grew 14 percent for typical workers. It rose 1,167 percent for C.E.O.s.”

An article in Fortune  highlighted some of the highest paid executives

In terms of straight compensation, Equilar ranks General Electric’s Larry Culp at the top of the list, earning $72,728,233 last year, a 208% increase. Nike’s John Donahoe II came in second with $53,499,980, the same amount as 2019. Microsoft’s Satya Nadella made $44,321,788. And Thomas Rutledge of Charter Communications saw his compensation soar 353% to $38,670,620.

Factor in the other parts of the package, though, and the numbers get a lot bigger – and the order of who earned the most differs wildly. Here’s what the Times study found:

* Chad Richison (Paycom) – $211.13 million
* Amir Dan Rubin (1Life Healthcare) – $199.05 million
* John Legere (T-Mobile) – $137.2 million
* Larry Culp (General Electric) – $73.19 million
* Chris Nassetta (Hilton) – $55.87 million

More attention should be focused on wealth inequality. Take the straight compensation of GE’s Culp at $72.7 million.  He presumably must pay taxes on this money meaning what he accumulates from his “earned” income is much less than $72.7 million/year. Even if he paid no taxes on his compensation, to reach the wealth of Page, which as of June 23 is $112 billion, he would have to work at this pay rate more than 1,500 years.  Hence, wealth accumulation should be a greater focus than the obscene amounts executives are being paid.  Just using Zuckerberg’s increase in wealth of $23 billion so far this year would take Culp working over 316 years to reach.

Certainly, contrasting executive pay with what other workers earn is a critical issue for those concerned with the level of economic inequality. For example, a GE worker making $100,000 a year, which is well above the median income level, would have to work 727 years at that level of pay to earn what Culp’s straight compensation is in one year, but over a million years to reach the wealth of Page.

Taxes Paid by Multi-Billionaires

Much has recently been written about the low taxes paid by some of the super wealthy. Currently, most of the gains in their wealth are not taxed unless one dies or the assets that accounts for the bulk of the swelling of their wealth (often stocks increasing in value) are sold at a gain which, under the tax code, is capital gain income subject to taxation. Benefiting them further is that the rate of tax on dividends and assets such as stocks sold for more than they cost (capital gains) that are held for more than a year is lower than the tax rate paid on similar amounts of income earned from working. Unlike capital gains and dividends, earned income is subject to an income tax and additional social security taxes (unless one has a pension plan contribution deducted from one’s pay that replaces social security as do some public employees) and medicare taxes.  Additionally, the super-wealthy, similar to all taxpayers, may avoid paying taxes on much of their capital gains and dividend income after taking deductions and credits to which they are entitled under the tax code.

However, the super-wealthy avoiding paying taxes on most, if not all, of their increasing wealth holdings is not what is most critical.  More troubling is that they have been allowed to accumulate such excessive amounts of wealth when so many people suffer from hunger, homelessness, a lack of proper medical care and access to a good public education.

Furthermore, the great wealth of the super-wealthy is largely a result of the past labor of others (in the form of what some call dead labor) and the ongoing labor (living labor) of workers being exploited—paid far less than the value of their labor. This exploitation is aided and abetted and enforced by the state. It and other institutions help to create a trained and compliant work force while too typically perpetuating an ideology that breeds acceptance of and celebrates, honors, and justifies the super-wealthy accumulating wealth actually produced by labor in a capitalist society.

Biden

Attributing the recent gains of the super-wealthy to Biden could be viewed as unfair given the short time he has been president.

Will Biden act and also press congress to alter the tremendous and growing wealth inequality?  Do recall a statement attributed to Biden while he was on the campaign trail.  He is quoted reassuring rich donors that “nothing would fundamentally change” if he is elected.

So far, his seeking of bipartisan support for his agenda suggests that significantly higher taxes being imposed on the wealthy won’t be happening any time soon. A recent example is the agreement on financing the bipartisan infrastructure deal.  As reported

In a major win for business groups, the infrastructure plan would not raise taxes on corporations [to reverse at least part of Trump’s corporate tax cuts.] Instead, it would be paid for with unused COVID-19 relief money, user fees, increased tax compliance and other measures.

Part of What’s Needed

If economic inequality is going to be seriously and fully addressed anytime soon, a confiscatory wealth tax would help the process by reducing much of the gross inequality we endure, and by providing funding to address the pressing needs of those less well-off.

Biden is not proposing such a wealth tax. “Progressive” Democrats, Warren, Jayapal and Boyle have put forward a wealth tax called The Ultra-Millionaire Tax Act. If enacted, it could raise an estimated $3 trillion over ten years.

However, compare the figure of $3 trillion with the $2.01 trillion gain in the wealth of the 1% in just the first quarter of 2021, or the gain of $5.12 trillion in their wealth during 2020, or the more than $12 trillion increase in their wealth over Obama’s eight years as president. If the trends of the recent decades are to continue, the result of this version of a wealth tax after ten years, barring other significant changes, would likely be even greater inequality than exists today, rendering this version of a wealth tax not much of an antidote to the strengthening of the inequality virus.

Notes.

1) https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:118;series:Net%20worth;demographic:networth;population:1,3,5,7;units:levels s

2) At the end of the first quarter of 2021, the wealthiest 1% had net real estate wealth holdings worth $4.4 trillion (after reducing them by the amount of their home mortgages of $.55 trillion.) The net value of their real estate comes to just 10.6% of their total wealth.

Rick Baum teaches Political Science at City College of San Francisco. He is a member of AFT 2121.

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