The stock market may be bullish, but sky-high corporate profits are juxtaposed with Americans struggling with stagnant wages. And that may not be a coincidence.
In the World Inequality Lab’s 2018 World Inequality Report, economists Thomas Piketty, Emanuel Saez, Lucas Chancel, Facundo Alvaredo, and Gabriel Zucman broke down the stark differences between income shares for both the top one percent and the bottom 50 percent around the world, but particularly in wealthy regions of the globe like the United States and Western Europe.
The report analyzed the change in total income share between the richest one percent and the poorest half of residents in each region between 1980 and 2016. While inequality in Western Europe slightly increased over that 36-year period, with the wealthiest citizens increasing their income share from 10 percent to 12 percent, it nearly doubled in the United States, widening from 11 percent to 20 percent.
“Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging,” the report reads. “While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries.”
This transfer of wealth from the working class to the ruling elite is likely to continue, given the passage of the Republican tax bill in 2017. The Tax Policy Center found that by 2027, 53 percent of Americans would be paying higher taxes compared to 2017, while 83 percent of the tax cuts laid out in the bill would go to the wealthiest one percent. What little gains American workers have seen in recent years has been largely eliminated by higher costs of living, like housing, food, and fuel.
In the meantime, the Trump administration is considering a new round of tax cuts, which will, again, disproportionately benefit the wealthy. As New York Magazine explained, the U.S. Treasury would seek to circumvent the legislative branch entirely in its effort to index capital gains to inflation, allowing investors to subtract the value of inflation and thus reducing their taxable income:
The rationale for indexing capital gains taxes to inflation is that it’s unfair for investors to pay tax on income that only represents inflation. That is to say, if you you buy a stock for $1,000, and its value increase to $1,500, under current law, you have to pay tax on the $500 gain when you sell the stock. Under Trump’s proposal, if you suppose inflation during that period totaled 10 percent, then $100 of the gain would be discounted, and you would only be taxed on a $400 gain.
The relentless widening of the gap between everyday Americans and wealthy investors may be part of the reason why socialism is becoming more and more popular. A recent Gallup poll surveyed self-identified Democrats and found that a majority of Democrats (57 percent) now hold a favorable opinion of socialism. Additionally, only 47 percent of Democrats viewed capitalism in a favorable light. This could potentially lead to more Democratic Socialists (like New York’s Alexandria Ocasio-Cortez) winning local, state, and federal elections in the future.
Logan Espinoza is a freelance contributor specializing in economic issues. He lives in Phoenix, Arizona with his wife and daughter. Contact him at logan DOT espinoza AT yahoo DOT com.