The 400 richest Americans now have more wealth than the bottom 61 percent of the population, a report released on Wednesday by the Institute for Policy Studies (IPS) reveals. According to “Billionaire Bonanza: The Forbes 400 and the Rest of Us,” just the twenty individuals at the top of the pile – a group that could fit into a Gulfstream G650 luxury jet, according to the study’s authors – now control more wealth than the bottom half of the population. That’s 152 million people living in 57 million households.
And there’s a stark racial divide at the top. The 100 richest households own more assets than the entire African-American community (there are just two black people on the Forbes 400 list, one of whom is Oprah Winfrey). And just 182 individuals on the Forbes list have more assets than America’s entire Hispanic population.
But Chuck Collins, director of IPS’s Program on Inequality and the Common Good and a co-author of the report, tells The Nation that their study likely underestimates the scope of the problem. “Our wealth data is a tip of the iceberg,” he says. “So much wealth among the über-rich is hidden, either in offshore tax havens or in these loophole trusts where money is shuffled around into private corporate accounts or between different family members, and it disappears from taxation or any sort of oversight or accountability. So there’s a huge amount of escaped wealth that isn’t even factored into these statistics.”
And Collins says it’s only getting worse. “These inequalities really undermine our quality of life,” he says. “We need to explain to people who say ‘So what, I don’t care how much the Forbes 400 has’ that it really does touch on all of our lives, deeply and profoundly.”
Billionaire Bonanza: The Forbes 400 and the Rest of Us
This report exposes the extreme wealth concentrated within the fortunes of the 400 wealthiest Americans and compares this wealth to the much more meager assets of several different segments of American society.
The report proposes several solutions to close the growing gap between the ultra wealthy and the rest of the country. These policies include closing offshore tax havens and billionaire loopholes in the tax code that the wealthy exploit to hide their wealth.
The report also proposes a direct tax on wealth to break up the concentration of wealth and generate trillions of dollars in new revenue to invest in wealth building opportunities for working families.
– America’s 20 wealthiest people – a group that could fit comfortably in one single Gulfstream G650 luxury jet - now own more wealth than the bottom half of the American population combined, a total of 152 million people in 57 million households.
– The Forbes 400 now own about as much wealth as the nation’s entire African-American population - plus more than a third of the Latino population - combined.
– The wealthiest 100 households now own about as much wealth as the entire African American population in the United States. Among the Forbes 400, just 2 individuals are African American - Oprah Winfrey and Robert Smith.
– The wealthiest 186 members of the Forbes 400 own as much wealth as the entire Latino population. Just five members of the Forbes 400 are Latino including Jorge Perez, Arturo Moreno, and three members of the Santo Domingo family.
– With a combined worth of $2.34 trillion, the Forbes 400 own more wealth than the bottom 61 percent of the country combined, a staggering 194 million people.
– The median American family has a net worth of $81,000. The Forbes 400 own more wealth than 36 million of these typical American families. That’s as many households in the United States that own cats.
We believe that these statistics actually underestimate our current national levels of wealth concentration. The growing use of offshore tax havens and legal trusts has made the concealing of assets much more widespread than ever before.
Two types of policy interventions can reduce extreme wealth inequality in the United States.
First, we must close wealth escape routes.
Wealthy individuals are moving quickly to shift wealth into offshore tax havens and bury it in private trusts, avoiding accountability and taxation every step of the way. This hidden wealth now totals in the trillions. Our first step must be to close these escape routes and tax dodges.
Second, we need to implement policies to reduce concentrated wealth.
Without action to directly reduce private concentrations of wealth, inequality will continue to grow. By seriously taxing our wealthiest households, we could raise significant revenues and invest these funds to expand wealth-building opportunities across the economy.
The Forbes 400 and the Rest of Us
Over the last decade, a huge share of America’s income and wealth gains has flowed to the top one-tenth of the richest 1 percent, the wealthiest one out of a thousand households.
Within this group, our richest 400 individuals command a dizzying amount of wealth, defined here as total assets minus liabilities. The annual Forbes 400 ranking provides a unique insight into the extreme wealth concentration at America’s economic summit. Forbes began publishing its top 400 ranking in 1982. The total wealth of the latest 400 adds up to $2.34 trillion, a new all-time record and more than the GDP of India, a country with a population of over a billion.
Many members of the Forbes 400 have amassed wealth in their lifetime through successful companies and innovation. But all of the Forbes 400 have also benefited enormously from a system of tax, trade, and regulatory rules tipped in favor of wealth holders at the expense of wage earners. Tax policies, for instance, routinely favor capital income over wage income, and these policies disproportionately benefit the Forbes 400, especially those working in finance.
The United States is becoming, as the French economist Thomas Piketty warns, a hereditary aristocracy of wealth and power. As a society, we must intervene. We need focused public policies to slow and reverse these trends and protect our democracy and social stability.
U.S. Wealth Pyramid Now Space Needle
The level of U.S. wealth inequality has grown so lopsided that our classic wealth distributional pyramid now more resembles the shape of Seattle’s iconic Space Needle.
The bulge at the top of our wealth “space needle” reflects America’s wealthiest 0.1 percent, the top one-thousandth of our population, an estimated 115,000 households with a net worth starting at $20 million. This group owns more than 20 percent of U.S. household wealth, up from 7 percent in the 1970s. This elite subgroup, University of California-Berkeley economist Emmanuel Saez points out, now owns about as much wealth as the bottom 90 percent of America combined.
But these numbers don’t tell the full wealth concentration story. For that story we need to examine our wealthiest 400, a cohort small enough to dine in the rotating luxury restaurant atop the Space Needle in Seattle. These 400 all possess fortunes worth at least $1.7 billion.
Our wealthiest 400 now have more wealth combined than the bottom 61 percent of the U.S. population, an estimated 70 million households, or 194 million people. That’s more people than the population of Canada and Mexico combined.
The higher up you go up our contemporary wealth ladder, the greater the imbalance. Perched atop our distributional space needle rests a Gulfstream G650 luxury private jet. Sitting in its 20 seats: America’s 20 wealthiest individuals.
The Top 20 Wealth Holders
The wealthiest 20 individuals in the United States today hold more wealth than the bottom half of the U.S. population combined. These 20 super wealthy – a group small enough to fly together on one Gulfstream G650 private jet – have as much wealth as the 152 million people who live in the 57 million households that make up the bottom half of the U.S. population.
This private jet metaphor could hardly be more appropriate. The 2015 Forbes 400 special issue features eight advertisements for private luxury jets, some running several pages long, as well as a special private jet promotional supplement entitled “The Mobility Advantage.” Very few on the Forbes 400, we can safely assume, fly on commercial flights.
The 20 wealthiest Americans include eight founders of corporations: Bill Gates (Microsoft), Larry Ellison (Oracle), Jeff Bezos (Amazon), Mark Zuckerberg (Facebook), Larry Page and Sergey Brin (Google), Michael Bloomberg (Bloomberg), and Phil Knight (Nike). The list also features nine heirs from families of dynastic wealth: two Koch brothers, four Waltons (Wal-Mart), and three fortunate souls from the Mars candy empire. Rounding out this top 20: investors Warren Buffett and George Soros and casino mogul Sheldon Adelson.
The Forbes 400 and Cats
Another way to contemplate the wealth imbalance the Forbes 400 represents: cats. The typical U.S. household holds $81,000 in wealth. The Forbes 400 have more wealth than 36 million typical U.S. households, as many households that own cats.
The Racial Asset Divide
The United States has a persistent racial wealth divide, the result of a multi-generational legacy of discrimination in asset building that began during slavery and has continued right up to present-day discrimination in mortgage lending.
As of October 2015, the homeownership rate for white Americans stands at 71.9 percent. By contrast, only 42.4 percent of African-Americans own their own homes and only 46.1 percent of Latinos. Ownership of corporate stocks, a valuable store and generator of wealth over time, appears even more skewed, with 55 percent of white households owning at least some stocks, but only 28 percent of African-Americans and 17 percent of Latinos.
In the aftermath of the 2008 economic meltdown, wealth owned by Latino and African-American families declined dramatically as home values collapsed, especially in urban areas. The wealth of America’s richest 1 percent also dropped in the immediate aftermath of the meltdown, but then rebounded quickly in subsequent years, as the stock market recovered. This resurgent market would prove of little help to the majority of African-American and Latino families, households that own no stocks at all.
The billionaires who make up the Forbes 400 list now have as much wealth as all of America’s African-American households, plus one-third of America’s Latino population, combined.
In other words, just 400 extremely wealthy individuals – the number of people who could fit into the swanky 21 Club Restaurant in midtown Manhattan – have as much wealth as 16 million African-American households and 5 million Latino households. An even more striking stat: The wealthiest 100 members of the Forbes list alone own about as much wealth as the entire African American population of 42 million people.
The wealthiest 186 members of the Forbes 400, meanwhile, own as much wealth as the entire Latino population, over 55 million people.
African-Americans overall make up 13.2 percent of the U.S. population, but have only 2.5 percent of the nation’s total wealth. Latinos make up 17 percent of the U.S. population and hold 2.9 percent of total private wealth. (See Table 3)
What about the divide in median wealth? Typical white households in the United States now hold $141,900 in net worth. The African-American household median: $11,000. The Latino: $13,700.
Only two African-Americans, Oprah Winfrey (#211 with $3 billion) and tech investor Robert Smith (#268 with $2.5 billion), currently reside within the Forbes 400. The only other African-American billionaire in the United States, Michael Jordan, did not make the $1.7 billion Forbes 400 cut. Jordan’s net worth: $1.3 billion.
Five members of the Forbes 400 come from Latino backgrounds. They include Jorge Perez, the condo king of Miami (#171 with $3.5 billion) and Arturo Moreno, a billboard billionaire and owner of the Los Angeles Angels baseball team (#375 with $1.8 billion). The three remaining Latinos all hail from one family, the U.S. children of the late Colombian beer magnate Julio Mario Santo Domingo, a major shareholder of SABMiller. Alejandro and Andres Santo Domingo sit at #149 on the list with $3.8 billion each, with Julio III at #358 with $1.9 billion.
Why Inequality Matters
According to research across several academic disciplines, extreme inequalities of income, wealth and opportunity undermine democracy, social cohesion, economic stability, social mobility, and many other important aspects of our personal and public lives.
Extreme inequality corrodes our democratic system and public trust. It leads to a breakdown in civic cohesion and social solidarity, which in turn leads to worsened health outcomes. Inequality undercuts social mobility – and has disastrous effects on the economy.
Too much inequality disenfranchises us, diminishing our vote at the ballot box and our voice in the public square. Wealthy donors dominate our campaign finance and lawmaking systems, even after efforts at reform. In the first phase of the 2016 Presidential election cycle, 158 wealthy donors provided half of all campaign contributions.
High inequality makes us sick and undermines public health. Unequal communities have greater rates of heart disease, asthma, mental illness, cancer, and other morbid illnesses. It is well known that poverty contributes to bad health outcomes. But research is showing that you are better off living in a community with a lower standard of living, but greater equality – than living in a community with a higher income, but more extreme inequalities.
Why is this so? According to UK health researcher Richard Wilkinson, communities with less inequality have stronger “social cohesion,” more cultural limits on unrestrained individualism, and greater networks of mutual aid and caring. “The individualism and values of the market are restrained by a social morality,” Wilkinson writes. The existence of more social capital “lubricates the workings of the whole society and economy. There are fewer signs of antisocial aggressiveness, and society appears more caring.”
Extreme inequalities of wealth rip our communities apart with social divisions and distrust, leading to an erosion of social cohesion and solidarity. The wealthy and everyone else today don’t just live on opposite sides of the tracks – they occupy parallel universes. New research shows that we’re becoming more polarized by class and race in terms of where we live. As this distance widens, it is harder for people to feel like they are in the same boat.
Extreme inequality undermines the cherished value of equality of opportunity and social mobility. Intergenerational mobility is the possibility of shifting up or down the income ladder relative to one’s parent’s status. In a mobile society, one’s economic circumstances are not defined or limited by one’s family economic origins.
Today, Canada and those European nations – with their social safety nets and progressive tax policies – are now more socially mobile than U.S. society. Research across the industrialized OECD countries has found that Canada, Australia and Nordic countries – Denmark, Sweden, and Finland – are among the most mobile countries. There is a strong correlation between social mobility and policies that redistribute income and wealth through taxation. The United States is now among the least mobile of industrialized countries in terms of earnings.
Too much inequality contributes to economic instability. Research by the International Monetary Fund (IMF) and the National Bureau of Economic Research point to the fact that more equal societies have stronger rates of growth, longer economic expansions, and are quicker to recover from economic downturns. According to Jonathan Ostry, an economist at the IMF, unequal income trends in the U.S. mean that future economic expansions will be just one-third as long as the 1960s, prior to the widening of the income divide. Less equal societies are more vulnerable to both financial crises and political instability.
Reversing Extreme Wealth Concentration
What can we do to reverse these extreme inequalities of wealth? In this section, we provide an overview of the public policies often proposed to address inequality. We argue that strategies to “raise the floor” and “level the playing field” will be insufficient to reduce the distorting effects of concentrated wealth.
We need public policies that directly address the top-heavy distribution of wealth. Unfortunately, the very wealthy are using offshore tax havens and private trusts to hide wealth and avoid public accountability and taxation. So before we implement our policy agenda, detailed below, we must first address the wealth escape routes.
Aggressive Avoidance at the Top: The Wealth Escape Problem
Calculations by the compilers of the annual Forbes list may understate the net worth of many of those extremely wealthy individuals listed. The Forbes calculations, for example, do not take into account the growing amount of U.S. and global wealth hidden in offshore bank accounts and secrecy jurisdictions. Nor do the Forbes data include the trillions in wealth buried in complicated and opaque trust mechanisms.
CLOSE OFF WEALTH ESCAPE ROUTES
To effectively reverse the concentration of wealth and power, we need to institute progressive wealth and estate taxes. But these tax policies will not be nearly as effective as they could and should be as long as offshore tax havens and trust mechanisms conceal wealth.
Stop Offshore Abuse
The Stop Tax Haven Abuse Act, introduced in the U.S. House of Representatives (HR 297) by Rep. Lloyd Doggett and in the U.S. Senate (S. 174) by Senator Sheldon Whitehouse, aims primarily at corporate tax avoidance. But several provisions also apply to individual tax dodging, attacking such problems as inadequate bank disclosure and the absence of transparency.
Systematically confronting offshore tax havens will require legislative action, international diplomacy, and sanctions and penalties aimed at both banks and tax haven jurisdictions. Nations must establish treaties requiring uniform disclosure and transparency, both of banks and capital flows. The large nation states have enormous potential leverage here. They could, for instance, sanction micro-states such as Luxemburg and the Cayman Islands by denying them access to trade. In 1962, France took such action against the principality of Monaco, then a tax haven for wealthy French citizens. Several analyses have detailed other possible interventions.
Close Billionaire Loopholes
A number of proposals to close tax-avoidance loopholes have appeared in legislation and in Obama administration budget proposals. One comprehensive approach, the Responsible Estate Tax Act (HR 2907and S.1677) introduced by Rep. Jan Schakowsky and Senator Bernie Sanders, includes a number of provisions to eliminate or reform dynasty trust arrangements. This legislation also aims to make the estate tax more progressive by adding graduated rates on larger estates. The Schakowsky-Sanders proposal would:
Strengthen the “generation-skipping tax,” which is designed to prevent avoidance of estate and gift taxes, by applying it with no exclusion to any trust set up to last more than 50 years.
Prevent abuses of Grantor Retained Annuity Trusts (GRATs) by barring donors from taking assets back from these trusts just a couple of years after establishing them to avoid gift taxes (while earnings on the assets are left to heirs tax-free).
Prevent wealthy families from avoiding gifts taxes by paying income taxes on earnings generated by assets in “grantor trusts.”
Sharply limit the annual exclusion from the gift tax (which was meant to shield the normal giving done around holidays and birthdays from tax and record-keeping requirements) for gifts made to trusts.
Progressive Income Taxation
Taxing the highest income households at higher rates would generate substantial revenue and have a negligible personal and economic impact on those households. The top 1 percent includes 1.13 million households with an average annual income of $2.1 million. Top 1 percenters pay an effective tax rate of roughly one-third of their total income in federal taxes. This calculation encompasses not just income taxes, but excise taxes, payroll taxes that fund Social Security and Medicare, estate and gift taxes, and the investor’s share of corporate income taxes.
The ultra-wealthy pay federal taxes at an effective rate far lower, as Warren Buffett, number two on the Forbes 400 list, has helped Americans understand. Buffett has noted that he pays taxes at a lower rate than his secretary. On the other hand, former Presidential candidate Mitt Romney tried to avoid talking about the 14 percent effective federal tax rate he paid on $21 million in annual income in 2010, less than half the highest income tax rate.
According to the Tax Policy Center, if America’s top 1 percent paid federal taxes at an effective 40 percent of their income, instead of the current 33 percent, the federal government would collect $157 billion in the first year. An increase to 45 percent would bring in $276 billion.
Targeting a 40 percent effective tax rate on just the top 0.1 percent, with an average income of $9.4 million, would generate $55 billion in additional revenue annually.
Taxing the wealthy at higher levels would reduce inequality. Investing the revenue gained through these higher taxes in wealth building for millions of families not featured in the glossy pages of Forbes might decrease inequality even more. A major increase in federal revenue would open the door to wealth-building programs that could lift families out of poverty and into the middle class.
The Forbes 400 provides a useful snapshot of the nation’s wealthiest individuals, an insight into a world most people will never witness firsthand. The Forbes 400 also provides an insight into just how lopsided our economy has become: Just 400 people hold as much wealth as over 190 million.
To even more accurately depict our current wealth divide, we need further research into the tax-evading strategies the super wealthy employ. But we already know enough to know that our current extreme inequality represents a clear and present danger to our social and economic well-being. We have before us serious policy options for creating a much fairer economy. As Thomas Piketty reminds us, inequality will only continue to grow if we do not act.