Widening Wealth and Income Gap

The worst health crisis and economic downturn in decades widens the wealth and income inequality gap in America

Federal Reserve Chairman Jerome Powell noted that the COVID-19 economic downturn did not fall “equally on all Americans,” and he warned that if the job losses and economic fallout were not contained and reversed, “the downturn could further widen gaps in economic well-being.”

When a large group of the population, such as the working class, is in economic distress, their spending is limited. And in a consumer-driven economy, spending is what drives the economy, corporate earnings, and, ultimately, the stock market.

Bloomberg on #wealth #inequality:
"The world’s wealthiest 500 individuals are now worth $8.4 trillion, up more than 40% in the year and a half since the global pandemic began its devastation."
Also important to keep front and center the worsening in the inequality of #opportunity

— Mohamed A. El-Erian (@elerianm) June 10, 2021

Wealth inequality is wide and widening

“Income and wealth inequality is soaring, wages for workers have been stagnant for almost 50 years and some billionaires pay nothing in federal income taxes.” Bernie Sanders

The share of wealth in the economy is increasingly owned by families in the top of the income distribution, according to The Brookings Institution. The top 20 percent held 77 percent of total household wealth in 2016, more than triple what the middle class held, defined as the middle 60 percent of the usual income distribution.

Consequently, lower-income households are a critical source of growth because they are more likely to spend any additional money they get. According to a working paper by the Chicago Fed in May, those who lived paycheck-to-paycheck spent more than two-thirds of the recent $1,200 relief checks within two weeks, while those who save much more of their monthly pay spent less than a quarter.

Economic, wealth and income disparity creates deep divides, which increase political risk for investors and opens the door to potential tax and regulatory changes that can weigh on corporate earnings and job creation.

Economic inequality is nothing new, and the human costs through generations aren’t easily quantifiable. But there is a growing consensus that rising income inequality and the wealth gap will play a crucial role in the strength of the economic recovery and future economic growth.

In the U.S., the top one percent holds more wealth than the middle class, according to data from the Federal Reserve. They owned 29 percent—or over $25 trillion—of household wealth in 2016, while the middle class owned just $18 trillion.[iii]

This has not always been the case. Before 2010, the middle class owned more wealth than the top one percent. Since 1995, the share of wealth held by the middle class has steadily declined, while the top one percent’s share has steadily increased.

Yet, a little more than half of U.S. households own some stock, usually through 401(k) plans, just 10% of households own 84% of the stock market, which means a swath of Americans didn’t reap the benefits of the last bull market and the recent stock market rebound.

The U.S. is a wealthy country, but it is becoming one in which a very small number of its citizens own a vast majority of the wealth, and from which both younger Americans and the broad middle class are failing to benefit. The widening wealth inequality explodes “…the myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most,” ProPublica reporters, Jesse Eisinger, Jeff Ernsthausen and Paul Kiel report. “The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”

References:

Brownlee Global – Wealth Building, Healthy Living, and Emotional Well-Being with Purpose

Guide and Educate Individuals How to Build Long-Term Wealth, Better Manage Their Money, and Achieve Financial Freedom

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