America Continues Its Dominance In Creating Wealth Inequality

A recent study from a global group of economists shows that the United States continues to be the leader in creating income inequality. Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez published “The Top 1 Percent in International and Historical Perspective” but rather than just highlight the income disparity they dove into what could be the causes.

The U.S. has thrived economically over the last century, but so too has the rest of the developed world. While the share of income received by the one percent has doubled in America, it hasn’t done so in the rest of the Western societies. One difference between the U.S. and other OECD countries during this time has been tax policy. American tax code has consistently been friendlier to the wealthy, which makes perfect sense considering only 30,000 of the richest individuals account for 1/3 of all campaign funds.

The charts below, taken directly from the study, illustrate how the growth in income ownership of the highest wage earners coincides with reductions in marginal tax rates in the U.S.

This alone cannot be the only factor. After all, the tax rates aren’t drastically different. As some have noted, the vast expansion of wealth among the wealthy in the U.S. could be directly attributed to Wall Street.

The same politicians that have busily been slashing taxes on the wealthy have also been loosening fetters on banking, allowing the financial sector to swell to bloated size and mop up ever-more income while contributing ever-less back to the economy. Again, this is consistent with other studies that have attributed much of the rise in inequality to the pay being sucked up by bankers and overpaid CEOs.

At the same time, U.S. lawmakers have also made it easier and more tax-friendly for the wealthy to pile up more capital gains on their investments. As O’Brien puts it, “The top 1 percent leveraged itself to the market, and haven’t looked back.”