Three months after the publication of Thomas Piketty’s “Capital in the Twenty-First Century,” it remains an open question whether Piketty’s tome will be remembered more for its thorough documentation of the growth of global inequality or for the shabby treatment it has received from those seeking to discredit the book’s findings. That’s a shame, both because the book does marshal the best data available on the tricky topic of wealth inequality and because persistent wealth inequality is a problem worth paying attention to.
A new study (PDF) funded by the Russell Sage Foundation reminds us that growing inequality is a well-documented fact of American life. The Sage report provides a fascinating and sobering first look at how the Great Recession reshaped the levels and distribution of wealth between middle-income families and the best-off Americans. (The report also has the merit of clocking in at a mere two pages, slightly less than Piketty’s magnum opus.) The study finds that over the past decade, the net worth of the median American household has fallen, adjusted for inflation, by more than a third—even as the best-off Americans have seen double-digit growth in their real net worth. In particular, the median household saw its net worth decline from just under $88,000 in 2003 to $56,335 in 2013 (meaning that 36 percent of the median group’s real wealth vanished over this decade). At the same time, the best-off 10 percent of American households have seen their real worth grow by almost 15 percent.
There’s a straightforward reason for this: the assets owned by the richest Americans are very different from those owned by middle-income families. While the wealth holdings of the “1%” and those in their immediate vicinity are dominated by stock and bonds, asset ownership for the vast American middle class means owning a home. And while the stock market has recovered well since the disastrous declines of the Great Recession, housing markets remain depressed relative to where they were ten years ago.
All of which highlights the importance of public policies designed to create wealth among middle- and lower income families that isn’t limited to the value of homes. Policymakers can take steps to make sure that low-income families are able to save some of their income—and tax reform can play an important role in this effort. When the limited wealth of middle-income families is tied up in homes, that means these homeowners often have no other source of wealth to rely on to get them through hard times. A tax system that taxes poor people further into poverty (as ours does) makes saving more difficult, if not utterly impossible, for fixed-income families. See ITEP’s “State Tax Codes as Poverty-Fighting Tools” for a sensible overview of the ways in which state tax reform can assist, rather than undermining, other asset-building efforts, by reducing the tax load on the very poorest Americans.