Nineteen new names were added last week to the Forbes 400, a ranking of America’s richest of the rich, a list including entrepreneurs, executives, financiers, and inheritors. The two richest people, Amazon’s Jeff Bezos and Microsoft’s Bill Gates, are now each worth more than $100 billion.
This is the exaggerated edge of an exaggerated trend. Even with today’s promising wage trends, the gap between the rich and the poor is now the biggest it has been in half a century, and the 400 richest Americans have tripled their share of overall wealth in the past 40 years. Given those dynamics, some Democrats argue that the United States should start taxing wealth, among them Senators Bernie Sanders and Elizabeth Warren, and Representative Alexandria Ocasio-Cortez.
Right-leaning politicians and billionaires describe proposals for a wealth tax as the worst kind of personal-grievance politics. Why blame the biggest boats for the fact that the rising tide is not lifting all of them? Those on the left say a wealth tax is necessary to alleviate poverty. Why not tax the biggest boats to help out the little boats?
But there are far more urgent reasons than poverty to get rid of billionaires and reverse the trend of economic polarization. A growing body of economic and political-science research demonstrates that Gilded Age–type inequality does not just mean having too many with too little. It is warping the very social fabric of the country, stifling mobility, innovation, investment, and growth, and putting the country at political risk.
Dramatic inequality in wealth means dramatic inequality in terms of political power means a political system unresponsive to what most people want. Wealth inequality, in other words, is an anti-democratic force. A remarkable study by Lee Drutman found that just 31,385 people—one ten-thousandth of the population—accounted for more than a quarter of all political donations in the 2012 campaign cycle, with politicians getting more money from fewer people than in any other year analyzed. No wonder low-income households’ policy preferences have little effect on political outcomes in the United States, whereas high-income households’ policy preferences do, as research by Martin Gilens of Princeton University and Benjamin Page of Northwestern forcefully shows. One of those political outcomes? Inequality itself: Unequal societies tend not to correct their own inequality, because of the political influence of the rich.
The country’s inequality is also stifling mobility and damaging the country’s human capital. As the country has become more unequal, it has also become more sclerotic and class-dominated. Despite all the money the government spends on public education, private education, health, and welfare, rich kids are likely to stay rich and poor kids are likely to stay poor. Measures of absolute mobility have fallen: Children born in 1940 had a 90 percent chance of doing better than their parents did, whereas children born in the 1980s had just a 50 percent chance of the same. The steps of the income ladder are too far apart for kids to climb them, in other words. Safe neighborhoods, quality education, and security at home are out of reach for too many children. Inequality is now driving a longevity gap, an educational-attainment gap, and a health gap. It lurks behind the country’s falling entrepreneurship rate, too. The country will not prosper through growth alone, but only through sharing its prosperity more widely.
Inequality, finally, is likely affecting growth—in no small part because it is affecting the country’s human capital, making it hard for would-be entrepreneurs and scientific geniuses and business leaders who happen to be born toward the bottom of the income scale to fulfill their potential. If the rich have all the money, there is less spending throughout the whole of the economy and fewer opportunities for businesses to pursue. One study by the Organization for Economic Cooperation and Development found that rising inequality slashed five percentage points from the United States’ GDP per capita from 1990 to 2010.
Given all this evidence, wealth taxes are not simply a way to pay for programs for the poor. They are a way of reducing the incentive for the rich to soak up all that money in the first place. They are a way of pushing the steps of the income ladder closer together to make them easier to climb. They are a way of ending what two leading economists on inequality, Emmanuel Saez and Gabriel Zucman, call “oligarchic drift,” and its attending political risks. They are a way of building a healthier economic future for everyone—including those 400 families up at the tippy top.