If the answer is $2.3 trillion, can you guess the question?

December 3, 2015
Homeless gets ready to spend the night on a sidewalk two blocks from the White House in Washington, DC, in this December 15, 2009 file photograph. In 2007, when the world was on the brink of financial crisis, U.S. income inequality hit its highest mark since 1928, just before the Great Depression.  Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Photo taken December 15, 2009. To match Special Report USA-ECONOMY/INEQUALITY.     REUTERS/Hyungwon Kang/Files     (UNITED STATES - Tags: BUSINESS SOCIETY) - RTXTQRA

Homeless gets ready to spend the night on a sidewalk two blocks from the White House in Washington, DC, in this December 15, 2009 file photograph. REUTERS/Hyungwon Kang

Just how large is the gap between the wealthiest Americans and the typical U.S. family? Here’s one way to think about it: the richest 400 people in the United States together possess more wealth than over 60 percent of the country, a striking 194 million people and more than the populations of Mexico and Canada combined.

A new report that I co-authored, Billionaire Bonanza: The Forbes 400 and the Rest of Us, provides a window into the world of the uber-wealthy and explores the widening gap. I propose a bold set of policies to reduce this gap, both by taxing the top and investing in broader opportunity for the rest of the country.

The Forbes 400 members have a combined fortune of $2.3 trillion. This is more than the gross domestic product of India, a country with more than a billion people. By comparison, the typical American family has about $81,000 in wealth — their total combined assets minus their debt. The combined wealth of 36 million such typical families is equal to the wealth of the Forbes 400.

The wealth gap in America is especially startling for people of color. Median household wealth for African-Americans is just $11,000 and for Latinos is $13,700. Together the members of the Forbes 400 possess more wealth than the entire African-American population plus one-third of the entire Latino population.

This rising inequality, which has accelerated in the last decade, has devastating implications. Extreme inequality has been linked to negative health effects like heart disease, asthma, mental illness, and cancer for everyone in these unequal societies, not just those at the bottom. In fact, according to British public health researcher Richard Wilkinson, we are better off living in a community with a lower standard of living but greater equality than living in a community with a higher income, but more extreme inequality. One explanation is the increased “social cohesion” that exists in more equal societies: greater networks of mutual aid and caring across society, and less hyper-individualism. Put differently, greater inequality tears the social fabric of society — we care less for each other and collectively suffer as a result.

High levels of inequality also erode social mobility — the ability of those born into poverty to climb the economic ladder into the ranks of the middle class. This is the result of a now-broken ladder of opportunity — the public investments in things like housing, education, and healthcare for those at the bottom and middle required to help people build wealth. Today, the United States is among the least socially mobile OECD countries in terms of earnings: children are less likely to earn more in real terms than their parents did.

So what can be done to reduce this skyrocketing concentration of wealth?

While there are venerable efforts from billionaires like Mark Zuckerberg, who this week announced he is giving away 99 percent of his wealth over his lifetime, these efforts won’t truly reverse the growing concentration of wealth.

From a policy perspective, reducing the wealth gap is quite simple. For those at the very top of the wealth spectrum, the federal government should institute a modest wealth tax in addition to the standard federal taxes on income and capital gains. For instance, a 1 percent tax on this year’s Forbes 400 members, those with assets above $1.7 billion, would raise $23.4 billion annually. For context, that amount of money could fund a year of Head Start — which provides early childhood education to over a million low-income children — as well as a year of the Women, Infant, and Children (WIC) program, which provides nutrition assistance to over half of all infants born in the United States — with over $8 billion to spare.

An even simpler way to reduce inequality through the tax code would be to ensure the wealthy paid an effective tax rate (the average rate at which their earned income is taxed) equal to the highest marginal tax rate (the amount of tax paid on an additional dollar of income), currently about 40 percent. According to the Tax Policy Center, the top 1 percent of Americans pay just 33 percent of their income in federal taxes, including income tax, excise tax, and payroll tax. Increasing this effective rate to 40 percent would raise $157 billion in just the first year.

This new revenue should be directed to public investments that create opportunities for broader wealth creation. Debt-free higher education would be a strong step in this direction, enabling students from any background to get a college degree without the burden of decades of student debt.

Instituting a wealth tax or any other policy that strikes at the growing wealth divide is unthinkable in our current Congress, which has shown little interest in serious discussion about tax reform, especially before the presidential election. But a generation ago, the thought that Americans would be experiencing such massive inequality seemed similarly unlikely. If we fail to take bold action, wealth will continue to concentrate into fewer and fewer hands.

14 comments

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Can we really say America is a democracy. Let’s call a spade a spade! Nowadays a Plutocracy by any other name is a Democracy.
Name me one democracy if you can on this God’s earth?!

Posted by pharoah | Report as abusive

We live in a one party capitalist system with two factions, calling themselves Democrats and Republicans. There is nothing really democratic about the United States. It is a free market capitalist system with a strong rule of law, but ruled by the capitalist party.

If your not a capitalist, you have no place in US society.

Posted by No_apartheid | Report as abusive

The words “God” and “Capitalism” do not appear anywhere in the U.S. Constitution. It’s wishful thinking.

Posted by Solidar | Report as abusive

Storm is coming.

Posted by Solidar | Report as abusive

The United States has never been a democracy. It’s a Republic. Retake civics.

Posted by EndlessIke | Report as abusive

A republic is supposed to offer representative democracy. And this one certainly does. Of the .1% by the 1% supported in large part by the top 5 or 10% that comprise the trustee class, including but not limited to major media moguls and their paid “journalists” and those in academia paid to lie by their corporate funded thinktank sponsors.

Posted by Heyoka | Report as abusive

“It is better to be of a lowly spirit among the poor than to divide the spoil with the proud.”

Proverbs 16:19

Posted by Ephphatha | Report as abusive

If the problem is as serious as you say, why only a ‘modest’ wealth tax? The author’s interest is not in reducing inequality, only in accruing more power to the state. Socialism by the back door/death by a thousand small cuts.

Posted by Het_Russ | Report as abusive

We have TAXATION WITHOUT REPRESENTATION, which last time I checked caused a revolution. The IRS are ruthless thugs who take your house and car if you don’t pay, yet WE HAVE ZERO SAY IN WHAT THE BUREAUCRATS SPEND OUR TAXES ON- ZERO.

They drone murder civilians in Pakistan, AFghanistan, Iraq, Syria, making AMERICANS TARGETS of TERRORISTS. AND THEY have armed guards then want to tell us we cannot be armed. The HYPOCRISY is STUNNING.

Time for a Million-armed-man-march on DC and make a new govt. like the Founding Fathers would.

Posted by UgoneHearMe | Report as abusive

The eventual answer is to return to where we were about 40 years ago, witha tax of about 90% on the wealthiest. The bottom line is that the hardwired behavior in all of us is to seek more and more for ourselves. The problem with that fundamental behavior being tide to possession of extreme wealth is that the individual then has the ability to subvert society into a money funneling machine for their own benfit at the expense of society. Ultimately, people feel when things are unfair and become more lawless when they are. It comes from the unspoken bargain of society- i’ll play by the rules if this society provides a life worth living-

Posted by zim_06 | Report as abusive

UgoneHearMe writes: “Time for a Million-armed-man-march on DC and make a new govt. like the Founding Fathers would.”

Actually, the founding fathers were generally from England. And they never marched on England’s capital (London). They just moved across the ocean to the woods and started their own thing with a bunch of slaves. And then killed all the Indians who got in the way. No million-man march.

Maybe you guys could move to Sierra Leone? Start your utopia there?

Posted by Solidar | Report as abusive

Pharoah: Mongolia.

Posted by hometown | Report as abusive

@EndlessIke wrote:
The United States has never been a democracy. It’s a Republic. Retake civics.

Bravo! I had momentarily pondered commenting on the “free market economy”belief but, wisely reconsidered, after stifling some insane laughter, and the thought that somehwere in the background the comment-scooch is quietly moderating posts and discussions.

Posted by Laster | Report as abusive

EndlessIke wrote:
The United States has never been a democracy. It’s a Republic. Retake civics.

Bravo! I had momentarily pondered commenting on the “free market economy”belief but, wisely reconsidered, after stifling some insane laughter, and the thought that somehwere in the background the comment-scooch is quietly moderating posts and discussions.

Posted by Laster | Report as abusive