Concerns about income and wealth inequality are gaining currency all over the world, including communist China. Unions are demanding that the minimum wage be raised to $15 per hour. It just went to $10 in Florida as part of a gradual increase to $15. Corporations have joined in by raising — or planning to raise — salaries for their lowest paid workers.
Dan Ariely from Duke and Michael Norton from Harvard universities have been studying attitudes about wealth inequality for about the past two decades. According to their research, Americans believe that the richest 20 percent own about 60 percent of the nation’s wealth, and ideally wanted them to have about 30%. In reality, the richest 20 percent own more than 80 percent of the wealth. At the other end of the spectrum, Americans estimated that the poorest 20 percent owned about 4 percent of the wealth. They believed that they should own about 10 percent. In reality they have just 0.1 percent.
They found that the ideal distribution described by this representative sample of Americans was dramatically more equal than exists anywhere in the world, with 32 percent of wealth belonging to the wealthiest quintile down to 11 percent by the poorest.
When given a choice between the wealth distributions of unnamed countries A (in reality the United States) and B (in reality Sweden), 92 percent of a nationally representative sample of Americans preferred Sweden and eight percent, America.
Surprisingly, a vast majority of Americans seem to prefer to live in a country with a wealth distribution more like Sweden, often referred to as a “socialist” country. (It’s not, by the way. It is a capitalist country buffered by substantial and costly social programs paid for with high taxes.) Furthermore, the similarity across political lines is far greater than the differences. Gender and income levels did not produce any significant difference in this preference.
Republicans and Democrats are pretty much in unison when it comes to an ideal wealth distribution. The researchers observed remarkable consensus across the political and economic spectrum. One might expect that the rich and poor, or liberals and conservatives, would hold very different beliefs about their ideal distributions. In fact, they observed unusual consensus across the political and economic spectrum.
Some European countries have the same level of pre-tax income inequality as America. This inequity is damped via higher taxes and income redistribution. In Sweden the highest marginal tax rate is 57 percent, paid on income above $66,419. In the United States, the highest rate is 37 percent, paid on income above $524,000. Can Americans stomach such high rates? They did between the 1940s and 1970s. Would it be possible today? Maybe, but with very gradual changes over time.
Bear in mind that there can be a huge disconnect between what is believed to be ideal and self-interest. It is quite generous and noble for the rich to maintain that they will support more wealth equality. But when it comes to parting with their money, the wealthiest will fight tooth and nail against reducing their proportion of wealth from 80 plus percent down to anything close to 30 percent.
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The opinion of some on the right that people tend to be poor because they are lazy — mainly minorities seeking welfare — is being blown out of the water since an increasing number of their apparently hard-working base are now falling through the cracks. So, some Republican Party leaders are urging the party to change its stripes by catering to the needs of working-class Americans.
The Republican Study Committee has recommended that the party rebrand itself as the party for the working class. The operational aspects of the recommendation are straight from Donald Trump’s playbook: to restrict immigration, trade and to fight “wokeness,” among others. Their agenda might garner some votes but will do little if anything to address inequality.
So, if there is support for taxing the wealthiest more, let’s do it. That money is sorely needed to fight climate change and improve infrastructure, among other efforts. The spending will definitely help workers on the bottom rungs of the ladder. This is what Americans want. So why are Republicans fighting it?
“Saving America for future generations” should be the catchphrase for the tax increase. Either we pay for it now or pay a lot more later.
Murad Antia teaches finance at the Muma College of Business of the University of South Florida in Tampa.