[One note here at the outset: the wealth gap multipliers are not really “hidden pieces” as my headline below implies, but they are pieces that most people don’t think about when they speak of income disparities and tax policy. But they are pieces you can’t separate from the whole picture of economic disparities, and are arguably just as important a topic of discussion as income taxes. Bernie Sanders speaks about it, but unfortunately his bombast tends to cause independent voters—the ones who increasingly make the differences in elections—to tune out.]
Hidden Pieces of the Tax and Wealth Puzzle: Wealth and Wealth Gap Multipliers
Regardless of specific amounts, even at comparable incomes (say, within one order of magnitude, $75,000 to $150,000), those with wealth behind them are many times more secure than those with little wealth. (Note that I plucked these numbers out of national averages; of course incomes and expenses are far greater in many major cities and upscale suburbs. Incomes are far lower among the poor and much of the lower middle class, of whom to speak of their nonexistent “wealth” is a bitter irony.)
To state the obvious: the wealthy have something to fall back on in hard times and personal emergencies.
Moreover, their wealth expands through wealth multipliers.
I have not looked at exact disparities in wealth in the U.S. for 20 years, since it was bad then and has obviously been getting worse. The Great Recession of 2007-2009 amplified the wealth disparity, and it hasn’t improved since then. (For a good idea of where it’s all going, read Plutocrats by Chrystia Freeland. )
Multiplier Number One, Race: note that the hardest hit are people of color, where the wealth gap is worse than for whites, and widening: see CNN analysis at Racial wealth gap in 2016
Wealth comes in many forms: cash, bars of gold, Bitcoin, bank accounts, stocks, stock options, Treasury bonds, retirement plans, trusts, property, etc. Some are more liquid, some more risky than others, and one is advised to have a diverse portfolio; but whatever the mix, if it totals more than five times your annual income, it gives you a buffer and the ability to sleep more peacefully at night than a neighbor whose income is equal to yours but has no wealth to fall back on. That person, like many Americans, may be going month to month, even week to week, living on only what they earn—there’s no buffer.
Multiplier Number Two: Savings Deficits. You can’t generate new wealth if you’re already in the hole. Many college graduates are paying off student loans at $300 a month for ten years, which curtails saving. The neighbor may have a health insurance plan with a $6,000 deductible, and then cancer strikes, or—make up your own health disaster for a family of four. Suppose the neighbor’s car is totaled, and s/he is upside down on the auto loan, paying off the loan as well as buying a replacement car ends up netting them less than the car is worth. Appliances break*, the heating system fails. The teenage son gets a $100 speeding ticket, usually accompanied by hefty “court costs” even if he never goes to court. Even without a major blow of thousands, the squeeze can get tighter a few hundred bucks at a time.
More Wealth Gap Multipliers: gender, education, eviction
Multiplier Number Four, Gender: Besides race and student loan burdens, an additional built-in wealth gap multiplier is gender, where women get paid less for the same work, and more women than men are heads of single-parent households. They can’t build wealth as easily as men who have a cushion to invest; also, fewer men head single-parent households.
Multiplier Number Five: unequal education: people with more wealth can afford to send their kids to better schools (or live in locales where the public schools are better than in lower-wealth locales) and better colleges. Those better-educated children get better jobs once out of college, accumulate more wealth, and can send their children to better schools, and the wealth keeps ratcheting up through the generations. This is not just a concept: it is happening.
Worst of all, the loss of a job, often owing to circumstances beyond their control, threatens disaster for whole families—members of which, in increasing numbers, are left out on the street. Eviction is perhaps the most devastating wealth gap multiplier you can think of.
Elderly parents may have to get nursing care or enter an assisted living facility: if you can’t shell out the money, you may have to reduce your work hours or quit work altogether in order to take care of them. In the worst case, sell your home.
[Sorry that the next two paragraphs largely duplicate material from the earlier post on taxes, but I think they are quick reads.]
Yet another multiplier of the wealth gap is the ability of those with larger assets to get larger loans (or any loans at all)—loans that can be used for education, or to start a profitable business, to buy and sell income-generating property, or move to an area where there are better jobs, or . . . you can think of still more ways to leverage wealth. Then you have con-men like Donald Trump, who gets a big loan for a project that loses money, goes bankrupt, leverages the savings from reduced payments to creditors in order to obtain another loan, and around and around several times until the banks finally get wise to the serial scam.
Meanwhile Trump, now using the U.S. Presidency to enrich his family, has been living in luxury and boasting of how clever he is to take advantage of bankruptcy rules and build an “empire” on the backs of stiffed creditors—an unconscionably twisted version of business “success. “(Just why this twisted version of success sells so well with Trump supporters is a sign either of Trump’s abilities as a con man, or the gullibility of an astonishing fraction of the public, or both.)
Sorry to end with Trump, but if anyone has benefited from all the wealth gap multipliers, it’s him.
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* a family-sized 9.2 cu. ft Energy Star refrigerator goes for $550 minimum at Walmart; a 3 cu ft. clothes washer, $332; a compact dryer, $220. You say, the washer and dryer are not necessities, but if you’re a cleaning lady with two kids who has to commute an hour each way across the city because she cannot afford to live near her customers, to go without a washing machine can mean an hour’s less sleep a night. She doesn’t have a lot of time to go shopping for stuff on Craigslist or eBay, and, because she is poor, she may not even have a computer or smart phone.