Between the rich and powerful


Living in the shadows of the rich and powerful can be a dicey thing, unpredictable. Signs that the wealth gap is widening are increasing. Evidence of the gulf between higher and lower income Americans has been mounting for not just months but years, albeit the recent pace of separation is quickening. The underlying causes are multiple and the downstream effects are substantial. This gap is changing the nature of our society. The perception both domestically and abroad is that this gulf is changing basic assumptions about who we are as a nation.

How is this happening? In part it’s due to generational wealth. It’s like what Oklahoma football coach Barry Switzer once said about people who were “born on third base and go through life thinking that they just hit a triple.” Wealth passed down from one generation to the next seems harmless enough, paying it forward, but this then leads to investment advantages beyond just the wealth.

If you’d been lucky enough to have inherited a million dollars on Dec. 30, 2023, and invested it all in an S&P 500 index fund on Jan. 1, 2024, so far this year you would have made $155,000, doing nothing but sitting on your “third-base” couch. Now, of course you’d have to pay taxes on that if you decided to pull out those “earnings,” but capital gains taxes are almost always lower than regular income taxes. If you wait for just over a year before you sell those stocks, the capital gains taxes are just 15%, or 20% if you are in a very high income bracket. Still, well below normal income rates.

If you happen to have the money to own your own house, you’ve likely made a bundle recently on your home equity. Home prices in the U.S. have risen for 11 consecutive years. In 2021, house prices increased by over 18 percent — the highest jump on record, making it harder though for first home buyers.

Look, no one begrudges the American Dream of getting wealthy. The question is, is the system rigged in favor of helping the rich get even richer at the expense of lower and middle classes increasingly unseen in their shadows. Graduated income taxes are designed to offset this burden. The idea is, the more you make, the more you pay in taxes. Yet is the scale sufficient to help the poorer improve their status? Given the widening gap, the answer may be no.

There are other factors. For example, are corporations paying their fair share, enough to relieve some of the tax burden off of lower income earners. Some examples, according to the Center for American Progress in 2021, the effective federal tax rate for Amazon (6.1%), Exxon Mobil (2.8%), At&T (-4.1%), Ford Motor (1%) General Motors (.2%) and Verizon (6.9%).

Are the extremely wealthy avoiding paying taxes by safe-harboring their income in off-the-financial-grid countries that help to hide their wealth? Do minimum wage laws conflate with the reality of prices?

Whether you were born on third base or happened to strike it rich in some high-tech enterprise the lifestyle consequences are making themselves pretty clear. Examples are fairly easy to cite, but an article in this week’s New York Times helped to make the point. Spending on travel was not uniform across income groups. Spending “picked up and was largely driven by consumers with discretionary income, wealth above and beyond basic needs,“ according to the Federal Reserve Bank of Richmond. “Conversely, low-to-moderate consumers were reportedly pulling back” because of “higher costs leading to tighter household budgets.”

“Surveys show that richer households are more optimistic about their ability to take trips, and services like full-service hotels are flourishing. Budget hotel chains, by contrast, are expected to report pullback.”

As the gulf widens, trends are apparent. “Rich people tend to spend a lot more on splurges like travel. The top two-thirds of income distribution accounts for about 60 percent of spending in the economy; the bottom two-fifths, about 22 percent,” according to the Bureau of Labor Statistics.

Which brings me back to the causes of this increasing gap between the upper level, middle and the lower level of income earners. Let me summarize.

1. Covid and the Great Recession hurt lower income families more than upper income families, and they’ve had lingering effects.

2. Generational wealth. It’s been called the Great Gatsby Curve, and in the U.S. that effect is more pronounced than in any other country with the possible exception of the United Kingdom – the concentration of wealth at the top and inheritance as a predictor of next generation net worth. (see: )

3. Individual tax policy helps the rich in ways not available to lower income families, like high-priced tax attorneys navigating loopholes.

4. Corporate tax policy could arguably make a difference in alleviating tax burdens on the less fortunate.

5. Technological changes and globalization have impacted lower income and lower net worth families to a greater extent than the wealthy.

6. The decline of unions has affected workers’ incomes and political advocacy.

7. Greater wealth generally means greater political influence. Billionaires can give millions to politicians in support of their economic preferences.

There are consequences to this expanding gulf between the rich and the poor in America. The stress of maintaining a household can have a major impact on mental health for parents and children. For example: Where to call home? How many jobs are needed to make rent and pay for food, transportation, childcare and health care? When these conditions deteriorate, crime escalates. Many studies both the U.S. and abroad show that when income disparity goes up, crime goes up.

The highly respected journal, The Economist, reported on these economic consequences in an article entitled “The Stark Relationship Between Income Inequality and Crime.” Daniel Hicks at the University of Oklahoma and Joan Hamory Hicks at the University of California Berkeley demonstrated that, “Over a 20-year period, the American states that had the greatest inequality in visible expenditures, also suffered the most from violent crime.”

These downstream effects of income inequality are only likely to increase. As the gap between the “haves” and the “have-nots” in America grows we become an increasingly divided nation. According to a study by the British Journal of Psychiatry, “Low socioeconomic status in childhood is a well-known predictor of subsequent criminal and substance misuse behaviours but the causal mechanisms are questioned.” Greek philosopher Aristotle cautioned, “Poverty is the parent of revolution and crime.

We need to remediate these underlying causes before the gulf threatens to overwhelm us.

Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.

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