In the past few years, economic inequality has become a mainstream political issue. We often hear politicians speak about “income inequality.” We should be speaking about wealth inequality, instead.
If you think about it for a moment, it’s pretty odd that “income inequality” has become the shorthand term for our big national discussion about class war. (It’s become so common that I’ve used it myself quite a bit, though I’m going to try to speak more specifically in the future.) Income inequality refers to a very specific thing: the widening gap between annual incomes in America. But annual income is simply a measure of how much you have coming in (or how much you happen to be declaring on your tax forms) in a single year. A much more useful topic of discussion—one that does a far better job of getting to the heart of what we really mean when we talk about economic inequality—is wealth inequality. Income inequality only matters insofar as it effects wealth inequality, anyhow. And if we’re not careful, focusing on income inequality can lead us astray from the larger goal of creating a fairer and more economically equal society.
Person A and Person B both have an income of $25,000 per year. But A has a net worth of $1 million, and B has a net worth of $0. Here we have no income inequality, and yet Person A flourishes, while Person B struggles to survive. This is a very simple illustration of why wealth is what really matters, rather than income. Add to that the myriad complex financial schemes that very rich people can use to minimize their taxable income, and the reason for focusing on wealth becomes even more clear. For all of the derision aimed at Thomas Piketty’s proposed solution to inequality (a global wealth tax), it is worth noting that his solution would have at least addressed wealth in its totality, rather than just income.
I point this out on the occasion of a new study that says that, contrary to popular narrative, income inequality has not grown during the Obama administration—roughly the same period as the Great Recession and the subsequent recovery. It calls the perception that income inequality has grown during this time a “statistical gimmick.” Specifically, the researcher, Stephen Rose, says, “While the richest 1 percent of households saw their after-tax incomes decline by 27 percent from 2007 to 2011, earnings of those in the bottom 95 percent of the income ladder dropped just 1 or 2 percent.” Rose attributes the difference between his findings and previous announcements about growing inequality during this same general time period to the use of different sets of years and different definitions of “income” in certain data sets.
Though this study was announced in the New York Times under the eye-grabbing headline “Inequality Has Actually Not Risen Since the Financial Crisis,” we should put this all into perspective before it spirals out into a new right wing talking point:
A) Even if income inequality has not risen since the financial crisis, income inequality is still at near-historic levels, and has been rising for three decades, and is generally very worrisome.
B) Even if income inequality has not risen since the financial crisis, wealth inequality may have risen since the financial crisis.
C) Income inequality is already very bad whether or not it has risen in the very recent past.
This latest study is actually meant to be used to point out that the Obama administration’s policies were successful in ameliorating some of the impact of the recession on the less-than-rich. But we all know that it will be lightly skimmed and then used to dismiss the very idea that economic inequality is still a pressing issue. Let’s not allow that to happen.
Tax the rich. Tax the wealth of the rich. And don’t believe the hype.