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As a nation, we like to brag about the strength of our middle class. Most Americans feel that the majority of our nation’s wealth resides in the middle class and while the wealthy certainly make much more than the middle class, the difference is less here than in other wealthy nations. Let’s talk about this fondly held myth with some facts provided by agencies such as the IRS, The World Bank, the Congressional Research Service and others.

First, we’ll talk about wealth and how it is shared among Americans. If you take the total wealth of the nation and divide it by the number of adults, it comes to $260,000 per adult. Not bad but 5 other nations are richer with Australia leading at $355,000 per adult. Now let’s look at the median wealth (50% have more and 50% have less). Americans have a median wealth of only $39,000 per adult which is only 15% of the average figure and far less than 17 other nations with Australia again leading at $194,000 per adult. It turns out that only Russia, Ukraine and Lebanon have a greater disparity between their average and median share of their nation’s wealth.

It gets worse. The top 1% of Americans own 36% of the nation’s wealth which is more than the bottom 95% of Americans. In fact, the bottom 50% of Americans only owns a paltry 1% of the nation’s wealth. Six of the Wal-Mart heirs alone own more wealth than 40% of all Americans combined. Of all the wealthy nations in the world, only Russia has a higher wealth inequity than America as measured by the wealth GINI index. We are indeed a nation of extremes.

Now let’s look at income. The top 0.1% of American families (one out of a thousand) takes home about  9% of our nation’s income and the top 1% gets a 21% share. In 1945, the top 0.1% only took home less than half today’s share. One of the reasons for this is the decrease in taxes on the wealthy. During the 40s and 50s, the top marginal federal income tax rate was close to 90% compared to about 40% today. Capital gains taxes were 35% in the 70s compared to 20% today. The average tax (total local, state and federal) paid by the top 0.1% of earners was about 50% in 1945 and is now down to about 25%. Candidate Romney had a federal tax rate of only 14% before the election - a rate most of us envy. 

Why does all of this make a difference? Arguments could be made solely on the basis of fairness and morality. Also, studies have shown that democratic nations with more equitable income and wealth distribution tend to be more stable and their people more content. Perhaps we could tolerate the inequity if it wasn’t getting worse. The problem is that it is getting worse and at some point the American people are going to question our economic system – perhaps with dire consequences.

Income and Wealth Inequity in the US

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