Exploring Wealth Inequality - And Proposals to Address It

October 3, 2019

How is wealth distributed in the U.S.? Students estimate it, examine the data, then discuss proposals by presidential candidates to narrow it. 

 

Introduction

Share with students that on September 26, 2019, the federal government released data showing that income inequality in 2018 was higher than at any time on record. (The U.S. Census Bureau first started tracking this information 50 years ago.)

Ask students: What does “income inequality” mean?

Elicit or explain:

It means that incomes are distributed unevenly. Of all the money Americans earned in 2018, a few very wealthy people earned a disproportionate share. The median household income in 2018 was about $62,000 – but a few Americans earned much more than that, while many earned much less.

Next ask students: What is the difference between a person’s “income” and their “wealth”?

Elicit or explain that:

  • Income is how much money a person receives on a regular basis for work (wages or salary) or through investments or benefits (such as Social Security payments).
  • Wealth is the value of everything a person owns, minus what they owe. What they own might include what’s in their bank account, their house, car, savings, or retirement funds. What they owe might include credit card bills or what they owe on their home mortgage or car loan.

A person who makes a high income is likely to have more wealth than someone with a low income. However, the wealthiest individuals have vast amounts of money beyond what they might earn month to month – such as money invested in stocks, property, or other assets.

Very often, wealth is passed from generation to generation, accumulating for decades or even centuries. 

The legacy of slavery, housing discrimination, and other policies that made home-buying difficult or impossible for Black families is a major contributor to the U.S.’s enormous “wealth gap”  between Black families and white families.

(See our lesson on Reparations for more on this.)
 


 

Small Group Activity: How is Wealth Distributed?


Tell students that we’re going to do a quick group exercise on wealth inequality in the U.S. We will break into groups (of perhaps 4-6). Each group will work together to draw two pie charts.

Give each group a sheet of blank paper.


Pie #1:  How do you think wealth is divided in the United States?

Ask each group to draw a pie chart on one side of their paper that shows the group’s best guess about how wealth is distributed in the United States.

First, draw a circle that fills the page. This circle represents all the wealth owned by individual households in the U.S.

Next, decide on how you think wealth is divided up in the U.S. Break this pie chart into three sections:

  • One slice will show the amount of the pie owned by the wealthiest 20% (one-fifth) of Americans.
     
  • The second slice will show how much of the pie is owned by the poorest 20% (another fifth) of Americans.
     
  • The third slice will show how much of the pie is owned by the 60% of Americans who are in the middle (representing the remaining three-fifths of Americans)

When students are done, ask them to leave their chart on a desk and walk around the room to see how other groups distributed their wealth.  (Are the charts similar? How do they differ?) Then ask students to pick up their pie drawing and return to their groups to draw Pie #2.


Pie #2:  How do you think wealth should be divided in the U.S.?

On the other side of the sheet, ask each group to create a new pie. In this pie, they will show what their group thinks the distribution of income in the U.S. should be:

  • How much should the top 20% have?
     
  • How much should the bottom 20% have?  
     
  • How much should the middle 60% have?

Once again, have students walk around the room to see how other groups thought wealth should be distributed.
 



Whole Group: Find Out the Facts
 

Now bring the whole group back together.  Ask students:

  • Was it hard to come to an agreement on how wealth should be distributed? Did you disagree? If so, how?
  • What did you notice about how other groups chose to distribute wealth? Were their similarities/differences?

Show students this chart showing how wealth is actually distributed:

  • The top 20 percent held 77 percent of total household wealth in 2016.
  • The bottom 20 percent of Americans owned 2 percent.
  • The the middle 60 percent owned 21 percent.

Wealth Inequality Chart

 

You might share that the top 1% alone own 29 percent of all the wealth. (This chart includes the 1%.)

Top 1% Wealth Inequality Chart

 

Ask students:

  • How did the actual distribution of wealth in the U.S. compare with your group's approximation?
  • Were you surprised by the way wealth is actually distributed? Why or why not?
  • How did your group's ideas about how wealth should be distributed compare to what other groups thought?  
  • What was your group’s reason for distributing wealth the way you did?
  • What do you think about the wealth distribution in this country?
     


Reading:  New Proposals to Tax Wealth

pdf version

 

Income and wealth inequality is a major issue in the 2020 presidential election.

The likely Republican nominee, President Trump, has said that he is addressing income inequality by presiding over a growing economy. The Trump administration pointed to 2019 Census Bureau data showing income increases for Americans. According to the U.S. Census Bureau, the real median income of family households increased 1.2 percent between 2017 and 2018.

However, the Bureau’s data also showed that income inequality had grown, reaching a record level in 2018.

The wealth gap has also continued to widen. The U.S.’s three richest individuals (Bill Gates, Warren Buffett and Jeff Bezos) collectively hold more wealth than the bottom 50 percent of the domestic population, a total of 160 million people – at a time when millions of Americans are struggling to cover the cost of housing, healthcare, and education.

The “wealth gap” between Black households and white household is wide, and stems from centuries of racist policies and institutions (from slavery to housing discrimination to mass incarceration). In 2016, the typical white family had about 10 times the wealth of the typical Black family and about 7.5 times the wealth of the typical Latinx family. The median wealth of white families was $163,000 in 2016; the median wealth of Black families was $16,000; the median wealth of Latinx families was $22,000.  (The racial income gap is wide too, but less dramatic: In 2018, the median white and Asian workers made more than 30 percent more than the typical Black and Latinx workers.)

Democratic contenders for the presidency see growing economic inequality as a major issue – and some emphasize not only income inequality, but wealth inequality. Candidates have offered a range of proposals to address this inequality.

Two presidential candidates – Senator Elizabeth Warren and Senator Bernie Sanders – have released proposals for a “wealth tax” that directly addresses wealth inequality. The money raised through these plans would help fund some of the proposals made by these candidates – such as health insurance for all, free tuition for public colleges and universities, universal childcare, and a Green New Deal (including transition to a green economy and support for those most at risk from the climate crisis).
 

Warren Plan

Senator Warren’s plan applies only to households with a net worth above $50 million — an estimated 70,000 households in total. She would apply a 2 percent additional tax on net worth from $50 million to $1 billion, and a 3 percent tax on households with a net worth above $1 billion. The tax brackets would be the same for married and single filers.  Warren projects that her plan would raise $2.6 trillion over the next decade, or $260 billion per year.

For a sense of scale, the total budget for the state of California was about $190 billion in 2018. The proposed U.S. Defense Department budget for 2020 is $738 billion.
 

Sanders Plan

Senator Sanders has proposed a 1% additional tax on households with a net worth of over $32 million (and single filers with net worths more than $16 million), affecting 180,000 households. The plan has several brackets, with a 2% tax over $50 million, 3% over $250 million, 4% over $500 million, 5% over $1 billion, all the way up to 8% on a net worth of over $10 billion. The tax would raise an estimated $4.35 trillion over a decade, or $435 billion per year.

While both candidates see their plans as a way to generate revenue for addressing inequality, Sanders is more explicit about his goal of reducing the wealth of the nation’s billionaires; he would cut their wealth in half over 15 years.
 



For Discussion

 

1. What benefits would there be of a wealth tax? What problems do you envision?

2.  Is it up to the federal government to redistribute wealth in this way? Why or why not?

3. Do you think the U.S. should enact a wealth tax? Why or why not?

 


 

Sources

https://www.stlouisfed.org/open-vault/2019/august/wealth-inequality-in-america-facts-figures

https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality

https://www.brookings.edu/blog/up-front/2019/06/25/six-facts-about-wealth-in-the-united-states/

https://inequality.org/facts/wealth-inequality/

https://www.washingtonpost.com/business/2019/01/24/elizabeth-warren-propose-new-wealth-tax-very-rich-americans-economist-says/

https://www.washingtonpost.com/business/2019/01/24/elizabeth-warren-propose-new-wealth-tax-very-rich-americans-economist-says/