The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

Inequality is over! If you want it.

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The level of wealth inequality in the U.S. is staggering and only getting worse. What happens next is up to us.

In 1969, John Lennon and Yoko Ono famously plastered billboards with the words “war is over! If you want it.”

Their message was that we live in a democracy, and war is a choice. If citizens rose up and demanded their elected leaders end the war in Vietnam (along with all wars), popular mobilization would compel them to do so.

Of course, today we can substitute “war” with inequality.

Inequality is a choice

Free markets lead to economic inequalities. That’s not a value judgment about the market system; it’s an empirical regularity. It’s a fact.

What happens next is up to us.

Citizens have to seriously reflect on whether the levels of inequality we’re living with is acceptable or not. If it’s acceptable, then we can continue allowing our elected representatives to do nothing to stop the nearly 35-year rise of inequality.

If, however, we believe inequality is too high, then we need send a serious signal to Congress to enact policies to reduce inequality.

It seems Americans have had enough with extreme inequality. That presidential candidates from both parties are making inequality a key issue is proof that the public’s discontent is being heard. Across the Internet, people have been expressing disbelief and outrage over Oxfam’s revised global wealth statistic. When we first started counting, 85 billionaires had the same wealth as the poorest half of the planet. Last year it was 80. This year it’s 62. It was 388 in 2010!

How can inequality be reduced in the U.S.?

To grossly oversimplify, the U.S.’s inequality problem boils down to the very rich becoming even richer and everyone else basically staying the same or getting worse.

Workers are feeling this in their stagnant paychecks. Students and parents are feeling it as tuition continues to rise, along with the need to take on more debt. And everyone is outraged that taxpayers had to bail out the banks after nearly destroying the economy, yet Wall Street CEOs and the richest Americans (whose fortunes are tightly bound to stocks) are doing better than ever.

Reduce the wealth gap

The level of wealth inequality in the U.S. is staggering.

While the top 1 percent is often pointed to as the place where all the wealth is accumulating, that’s actually misleading. Pretty much all the wealth captured by the 1 percent is explained by the massive gains going to the richest 0.1 percent! In the 1970s, the 0.1 percent captured about 7 percent of all of America’s household wealth. By 2012, they captured 22 percent. To put it differently, about 314,000 people own nearly a quarter of all America’s wealth.

The wealth gap is growing because the incomes of the top 0.1 percent have been increasing out of pace with other workers. Those income gains are turning into wealth gains, as the richest Americans turn income into assets.

The surest way to close the wealth gap is through progressive taxation on income. We can draw on our own history as evidence. Believe it or not, from the 1940s through the 1970s the top marginal income tax rates were double and triple what they are today. At one point, the top marginal rate was 90 percent. During these decades, economic inequality reduced from its zenith during the Gilded Age and roaring twenties. And, despite claims that higher taxes will damage the economy, corporate America thrived and many created vast fortunes.

Crackdown on tax dodging

Not only are we doing a poor job taxing income, our tax system permits the wealthiest to cheat the system.

Corporations cheat paying their fair share through bookkeeping wizardry that claims their profits in offshore tax havens. Often this is a total farce, as their profits derive primarily from the U.S. Today, it’s estimated that 20 percent of U.S. corporate profits are booked in tax havens (a tenfold increase since the 1980s).

Wealthy individuals can use similar tricks to cheat the system too. By one estimate, 4 percent of America’s wealth is held offshore. This translates into about $36 billion of lost tax revenue.

To be clear, the government doesn’t respond to the loss tax revenue by building less schools or roads. Instead, they pass along this burden to you and me. Tax dodging keeps inequality high by letting the super wealthy hide from the system, and by taxing ordinary citizens more.

Congress needs to close the loopholes allowing wealthy individuals and corporations from using tax havens.

Reverse Citizens United

Raising taxes on the wealthiest and preventing the use of tax havens rests on mobilizing the voices of ordinary citizens.

Yet, the obscene amounts of money deployed by powerful interest groups and corporations who oppose these shifts drown out the voices of a majority of Americans who want to see inequality reduced.

The Citizens United Supreme Court decision has made this even worse. The law allows corporations and super wealthy individuals to spend limitless amounts to influence elections. This means our elected leaders are even more beholden to a small minority whose interests include keeping taxes on the rich low and tax havens available.

The Citizens United decision presents a serious threat to American democracy, and it needs to be defeated. Some are calling for President Obama to issue an Executive order to weaken the ruling. Others are pushing for Congress to overturn the Court’s decision.

The bottom line is: inequality is a choice. And as Louis Brandeis famously said, “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

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