"Inequality Counts"
The Nation
Every three years since 1989, the Federal Reserve Board has prepared a
Survey of Consumer Finances (SCF), which carefully measures the net worth of
all households in the nation — that is, the total assets owned by all
Americans. The survey, the most complete and thorough analysis of individual
wealth, summarizes the financial resources of different groups of the
population, such as bank accounts, stocks, bonds, business assets and real
estate. The most recent report, issued early in April 2006, details the
massive inequality of wealth in the United States between a small number of
households at the top of the income scale and those in the bottom half. This
report and other similar studies emphasize that this wealth inequality is
growing and is becoming a permanent part of our society.
The latest report examined the distribution of wealth in 2004 and makes
detailed comparisons showing the change in wealth among various population
groups. It notes the following:
The total net worth of all Americans in 1989 was $25 trillion (in 2004
dollars). Of that amount, the top 1 percent owned 30 percent, or $7.775
trillion. The bottom half owned 3 percent of the total, or $763 billion.
Fifteen years later, in 2004, the total wealth of all Americans had doubled
to $50.25 trillion. The top 1 percent of the population now owns 33.4
percent of the total, or $16.774 trillion. Their percentage share of the
total has increased by more than 3 percent in fifteen years. At the same
time, the total wealth owned by the bottom 50 percent increased to $1.278
trillion, but its percentage of total wealth declined from 3 percent to 2.5
percent in the same time period.
Thus the wealth of the top 1 percent was ten times the wealth of the bottom
50 percent in 1989. Fifteen years later, the wealth of the top 1 percent was
thirteen times the wealth of the bottom 50 percent.
Examining the type of wealth owned by each group, the SCF reports that the
top 5 percent of the population owns 85 percent of closely held business
assets in the country, 79 percent of the publicly traded stocks and 70
percent of mutual funds.
At the bottom of the scale, the story is far different. While many reports
have claimed that about 50 percent of households own some stocks or shares
in mutual funds (either directly or through IRAs or company pension plans),
the actual amount held is quite small. According to the SCF, the bottom 50
percent own less than 1 percent of business assets, stocks and mutual
funds — so much for President Bush's claim that we need to reduce taxes on
dividends and capital gains because we are an "ownership society" with so
many Americans owning shares. The principal asset of the bottom 50 percent
is the value of their homes, usually heavily mortgaged.
The reason for this change is not difficult to discern. Beginning with the
reduction of income tax rates in the Reagan Administration (from a high of
70 percent for the richest taxpayers in 1980 to 35 percent now), Congress
has steadily reduced tax rates. It has reduced and is seeking to eliminate
the estate tax altogether. In 2003 Congress lowered the tax on dividends to
15 percent, rather than treat it as ordinary income subject to the highest
tax rate of 35 percent. It also reduced taxes on capital gains from 20
percent to 15 percent. Necessarily, these changes greatly benefited the
households at the top of the wealth ladder.
Where can this largesse for the wealthy come from? If the government has a
program of tax reductions for the wealthiest, necessarily this leads to
budget shortfalls and then a decrease in welfare payments to the people at
the bottom. Where else could this money come from? Certainly not from
military expenditures. Congress passed a budget resolution last year that
cut $10 billion in Medicaid programs, $3 billion from food stamps and $7
billion from student loan programs. The House has passed new resolutions
this year calling for even greater reductions in these programs.
The growing inequality between the very rich and the bottom half affects
every aspect of American life — healthcare, education, occupational
opportunities. But those in the bottom half find it harder and harder to
move out of their sorry condition, as those on the top fight to protect
their position and have the assistance of the politicians who pass law after
law favoring their interests.
