'Americans are increasingly wealthy or increasingly struggling': how inequality is imperiling democracy

I did my taxes Friday. I traveled down to South Carolina for the holiday. After spending time with family, I sat down and typed the necessary values into some overpriced tax software. It turns out, for the second year in a row, I owe Uncle Sam.

Around that time, a piece from ProPublica came across my radar.

Entitled “America’s Highest Earners and Their Taxes Revealed,” the report asserts: “In an era of widening gaps between the rich and everyone else, ProPublica’s analysis shows that the US tax system is making inequality worse.”

The takeaway is that the wealthiest people pay far less in taxes than they should. My tax rate was 22 percent. The report revealed the wealthiest Americans pay what ProPublica calls an effective tax rate of 3.4 percent.

After feeling a bit peeved about the likes of Lukas Walton, heir to the Wal-Mart dynasty, may pay less in taxes relative to his income than I do, I realized that other than Bernie Sanders and a few progressive economists like Robert Reich, we don’t talk enough about inequality.

Here is an explainer.

What is inequality?

We must first understand what the middle class is. That is not easy.

There is no real agreement on how to define it. An informative piece by the Brookings Institution lists 12 definitions, which, if combined, would mean “nearly nine out of ten U.S. households — with incomes ranging from $13,000 to $230,000 — are middle class.”

Clearly, this is not helpful.

I will pick one from the Pew Research Center. Pew defines the middle class as a household income of 67 percent to 200 percent of the national median.

According to the US Census, the median household income in 2020 was about $67,500. This is the middle value of household incomes.

If you arrange all household incomes from lowest to highest, the value at which half the households are below and half are above, that’s the median. It’s used instead of average (or mean) income, because adding in very high incomes, like the model and celebrity Kendall Jenner’s $22.5 million income in 2018, would produce misleading values.

According to Pew’s definition, households with incomes between $45,225 and $135,000 are middle-class households.

That passes the eye test for me.

We can imagine households in this range have enough income to participate in our consumerist society, but not so much that they can remove themselves from economic concerns about employment, inflation or saving for their children’s tuition.

There are two related but distinct phenomena that have emerged since the early 1970s with respect to this middle class.

First, the middle class is shrinking in absolute terms.

The percentage of people who are middle class based on objective measures of income distribution has declined. The share of American adults who live in middle-income households has decreased from 61 percent in 1971 to 51 percent in 2019.

Americans are increasingly wealthy or increasingly struggling.

Unionized jobs and jobs that pay solid middle-class wages are being replaced by “gig” jobs and low-paid service jobs. Meanwhile, wages for jobs in finance, law, medicine and information technology are booming.

This is the much-talked-about “hollowing out” of the middle class.

Second, the distance – measured by income, between rich and poor – is widening. A report from the Congressional Research Service on this issue makes it clear: “In 1975, the average income of households in the top fifth of income distribution was 10.3 times as large as average household income in the bottom fifth of the distribution; in 2019, average top incomes were 16.6 times as large as those at the bottom.”

Being in an upper-income household in the United States today means you are living a different life than poorer households.

In some respects, the above quote underestimates the degree of distance between rich and poor, especially in terms of wealth.

According to data from the Federal Reserve, at the end of 2021, the top 10 percent of American households controlled $99.20 trillion. The rest of the households had wealth amounting to $42.98 trillion dollars.

It actually gets worse. If we look at just the bottom half of American households, their wealth amounts to $3.73 trillion dollars.

Ok, so why does it matter?

Income inequality produces oligarchy.

Politics

Few people are so naive as to assume everyone has an equal say in who is elected and what legislation they put forth. We all know that while the vote cast by a working-class Joe or Jane is equal to the vote cast by a millionaire, the millionaire’s money influences who is elected and what legislation the elected decides to support.

But the extent to which money impacts politics is astounding.

Consider the current Alabama senate race.

According to OpenSecrets.org, Super PAC Alabama Conservatives Fund has spent $1.8 million in support of Katie Britt’s 2022 bid.

Britt is one of several Republican contenders to replace the outgoing Senator Richard Shelby. The Alabama Conservatives Fund has released several campaign spots touting Britt’s conservative principles.

Harbert Management, an investment management firm, is the super PACs biggest investor, donating $250,000. The company’s CEO is Raymond J. Harbert, who is one of the richest people in Alabama.

So what do you think your direct donation of $50 does?

To be sure, small donations do add up. But when a candidate gets a $250,000 boost from a local, well-known millionaire, that has to play into the political calculus of that candidate.

As a side note, Britt is in the vein of Marjorie Taylor Green and Madison Cawthorne. She is pro-Christian, pro-life and anti-immigration. Indeed, the person who would have been the favorite in a pre-Trump universe, current US Rep. Moe Brooks, was called “woke” by Donald Trump who then rescinded his endorsement.

Accordingly, her Trumpist Christian nationalist bona fides have gained the favor of the Alabama Christian Conservatives super PAC to the tune of $1.2 million.

This spending by super PACs is all above board and expected. In this regard, Katie Britt’s campaign is not unique. Nor is the state of Alabama.

Nor are conservatives. What is unique is the growing gap between the rich and everyone else, and the growing ability for wealthy people working alone or in concert to bend politics to their will.

I zeroed in on Alabama to show in a more concrete way how money impacts politics. But there is no solace in zooming out.

It gets worse.

According to Public Citizen, 25 people contributed half ($1.4 billion) of all individual super PAC contributions ($3 billion) since 2010.

The issue of the 2020s

Income inequality is a bacteria eating out the core of democracy.

Do we really have a political system by which everyone is treated equally and has an equal say in government? Let’s not be naive.

What we have is increasingly a nation of rich and poor.

The rich – and especially the mega-rich – are like oligarchs who influence law in their favor at the expense of workaday folks.

I hope income inequality is the defining issue of the 2020s.

Our identity as a nation hangs in the balance.