How Wealth Inequality Spiraled Out of Control | Robert Reich

Summary

The video script highlights the alarming levels of wealth inequality in the U.S., comparing the current situation to the Gilded Age. It discusses how the ultra-rich, like Elon Musk and Jeff Bezos, have amassed fortunes that the average American could never hope to achieve, even over millions of years. The script points to the exacerbation of this gap during the pandemic and criticizes the political influence of the wealthy, which has led to tax loopholes and policies favoring the elite. It calls for a return to wealth taxes and a fairer economic system to counter the dynastic accumulation of wealth and its threat to democracy.

Takeaways

• 💰 Elon Musk's wealth surpassing $200 billion highlights extreme wealth inequality in the U.S.
• 🕰️ It would take the average U.S. worker over 4 million years to earn what Musk has, emphasizing the income gap.
• 🛑 The U.S. is experiencing a second Gilded Age with a few individuals holding significant economic power.
• 🚀 While the wealthy enjoy luxuries like space travel, the financial struggles of the working class are starkly contrasted.
• 📈 U.S. billionaires increased their wealth by $2.1 trillion during the pandemic, while many others faced economic hardship.
• 💼 The rich have enough political power to reduce their tax burdens to minimal levels, sometimes to zero.
• 📊 Wealth inequality is significantly larger than income inequality, with wealth growing over time through investments and inheritance.
• 🏦 Personal wealth comes from savings and investments, as well as inheritance from previous generations.
• 📉 The wealthiest 1% now own over 35% of the nation's total household wealth, up from 20% in the 1970s.
• 📊 Stock market growth has disproportionately benefited the richest 1%, who own half of the stock market.
• 💼 The typical worker's wages have barely increased, and many Americans live paycheck to paycheck, unable to save.
• 👨‍👧‍👦 The Walton family, with heirs on the Forbes billionaires list, exemplifies how wealth can be passed down and concentrated.
• 💔 Concentrated wealth endangers democracy by giving an unelected elite sway over the economy and political landscape.
• 👥 Dynastic wealth challenges the meritocratic ideal of America and economic fairness.
• 👩‍👧‍👦 Gender and racial disparities are magnified by wealth concentration, with women and people of color at a significant disadvantage.
• 🔄 Wealth concentration can create a self-perpetuating aristocracy, contrary to American ideals.
• 📉 Past attempts to address wealth concentration through estate and capital gains taxes have been eroded by loopholes and political influence.
• 💼 The wealthy have used their increased political power to reduce their taxes, echoing Teddy Roosevelt's concerns.
• 📈 A new wealth tax and closing tax loopholes are suggested as solutions to address wealth inequality.
• 🗳️ Public awareness and political action are crucial to demand an economy that works for all, not just the privileged few.

Q & A

What is the current state of wealth inequality in the U.S. as mentioned in the script?

The script indicates that wealth inequality in the U.S. is severe, with Elon Musk's wealth alone surpassing $200 billion, a sum that would take the median U.S. worker over 4 million years to earn.

How does the script describe the current era in comparison to historical periods?

The script compares the present time to America's second Gilded Age, similar to the late 19th century, characterized by a few individuals monopolizing the economy, suppressing wages, and influencing lawmakers.

What impact did the pandemic have on the wealth of U.S. billionaires according to the script?

During the first 19 months of the pandemic, U.S. billionaires added $2.1 trillion to their collective wealth, highlighting a stark contrast to the financial struggles of working Americans.

Why have the wealthiest Americans been able to reduce their tax rates to almost nothing?

The script suggests that the rich have enough political power to influence tax laws in their favor, allowing some, like Jeff Bezos, to pay no federal income taxes in certain years.

What is the difference between 'income' and 'wealth' as defined in the script?

Income refers to what one earns periodically (weekly, monthly, or yearly), while wealth is the total sum of one's assets, including savings, investments, and inherited property, which can appreciate over time.

How does wealth grow over time according to the script?

Wealth grows as the economy expands due to population growth and increased productivity, which in turn raises the value of assets like stocks, bonds, and real estate.

What are the two main sources of personal wealth as outlined in the script?

The two main sources of personal wealth are savings from income that is not spent, which can be invested to create wealth, and wealth inherited from previous generations.

How has the wealth of the top 1% in the U.S. changed since the 1970s?

In the 1970s, the wealthiest 1% owned about 20% of the nation's total household wealth, but now they own over 35%, largely due to the increased value of shares of stock.

What is the Walton family's significance in the script's discussion of wealth inheritance?

The Walton family, heirs to the Walmart empire, is highlighted as an example of wealth concentration, with seven heirs on the Forbes billionaires list, indicating the potential for further wealth consolidation.

How does the script describe the potential impact of wealth concentration on American democracy?

The script warns that concentrated wealth can lead to more power in the hands of a few, potentially allowing an unelected elite to exert significant influence over the economy and democracy, similar to European aristocracies of the past.

What historical measures did President Teddy Roosevelt implement to address wealth concentration?

President Teddy Roosevelt advocated for wealth taxes, leading to the enactment of an estate tax in 1916 and a capital gains tax in 1922, both aimed at preventing the emergence of a new American aristocracy.

What are some of the modern loopholes and policies that have allowed wealth concentration to persist?

The script mentions the stepped-up basis loophole, which allows heirs to inherit assets without paying capital gains taxes on the increased value, and the Trump Republican tax cut, which significantly increased the estate tax exemption.

What solutions does the script propose to address wealth inequality?

The script suggests following Teddy Roosevelt's wisdom by implementing a new wealth tax, closing tax loopholes, raising capital gains tax, and fully funding the IRS for better auditing of the wealthiest taxpayers.

How does the script suggest individuals can contribute to addressing wealth inequality?

Individuals are encouraged to understand the realities of wealth inequality, recognize how the system favors the top earners, and demand political action to create a more equitable economy.

Outlines

00:00

💰 Wealth Inequality and America's Second Gilded Age

The first paragraph discusses the extreme wealth inequality in the United States, highlighting Elon Musk's wealth surpassing $200 billion and comparing it to the median U.S. worker's earnings. It draws a parallel to the Gilded Age, where a few monopolized the economy and influenced politics. The script points out the increase in wealth for U.S. billionaires during the pandemic and the ability of the rich to minimize their taxes. It explains the concepts of income and wealth, how wealth grows over time, and the sources of personal wealth, which include savings and inheritance. The wealth gap is emphasized, with the richest 1% owning over 35% of the nation's wealth, and the script notes the minimal wage growth for the average worker.

05:04

🏛 The Threat of Dynastic Wealth to Democracy and Equality

The second paragraph delves into the dangers of concentrated wealth, suggesting it leads to increased power and influence over democracy and the economy. It discusses how dynastic wealth undermines the meritocracy principle and economic fairness, pointing out gender and racial disparities in wealth accumulation. The script provides statistics on the wealth gap between single women and men, and between Black and white households, which have likely widened during the pandemic. It also references historical precedents, such as Teddy Roosevelt's warning about the concentration of wealth and the measures taken during his time, including the estate tax and capital gains tax, which have since been weakened by loopholes and increased wealth concentration.

10:11

🛡️ Solutions to Combat Wealth Inequality

The final paragraph proposes solutions to address wealth inequality, advocating for the taxation of significant wealth accumulations as Teddy Roosevelt did. It suggests closing tax loopholes, raising capital gains tax, and better funding the IRS for audits. The paragraph calls for a new wealth tax on wealth exceeding $1 million and emphasizes the importance of public understanding and political action. It concludes by stressing the urgency to break the cycle of wealth concentration and to demand an economy that benefits the many rather than a privileged few.

Keywords

💡Wealth Inequality

Wealth inequality refers to the uneven distribution of assets among individuals within a society. It is a central theme of the video, illustrating the vast gap between the ultra-rich and the average worker in the U.S. The script mentions that Elon Musk's wealth surpasses $200 billion, a sum that would take the median U.S. worker over 4 million years to earn, highlighting the extreme disparity.

💡Gilded Age

The Gilded Age is a term used to describe the late 19th century in the United States, characterized by economic growth alongside severe wealth inequality. The video draws a parallel between that era and the present, suggesting a resurgence of similar conditions with a few individuals holding a disproportionate amount of wealth and influence.

💡Robber Barons

Robber barons were powerful and wealthy individuals in the late 19th century who amassed their fortunes through tactics that were often seen as unscrupulous. The video uses this term to describe modern-day billionaires, implying that they exert similar monopolistic control over the economy and political system.

💡Pandemic

The COVID-19 pandemic is referenced to highlight the period during which U.S. billionaires significantly increased their wealth while many others faced financial hardship. This underscores the growing wealth gap and the lack of equitable distribution of economic gains.

💡Tax Rate

The tax rate in this context refers to the percentage of income or wealth that is paid to the government as tax. The video points out that the 400 richest Americans pay a lower overall tax rate than almost anyone else, indicating a tax system that may disproportionately favor the wealthy.

💡Wealth

Wealth is defined as the sum total of one's assets, such as cars, homes, and investments. The video emphasizes that wealth is not only valuable in the market but also appreciates over time, contributing to the wealth gap as the rich accumulate more assets that grow in value.

💡Inheritance

Inheritance is the passing down of wealth from one generation to the next. The script discusses how the ultra-rich can pass on their wealth to their heirs, which can then be further accumulated, leading to a concentration of wealth in fewer hands.

💡Dynastic Wealth

Dynastic wealth refers to wealth that is passed down through generations, often leading to the creation of wealthy family dynasties. The video warns that this can lead to a self-perpetuating aristocracy, concentrating power and wealth in the hands of a few families.

💡Meritocracy

Meritocracy is a system where individuals are rewarded based on their abilities and achievements. The video argues that dynastic wealth undermines the meritocratic ideal by allowing wealth to be inherited rather than earned through merit.

💡Estate Tax

Estate tax is a tax on the wealth accumulated during a person's lifetime that is paid by their heirs upon their death. The video discusses the historical implementation of estate taxes as a means to prevent the concentration of wealth but notes that these have been eroded over time.

💡Capital Gains Tax

Capital gains tax is levied on the profit made from the sale of assets. The script mentions that wealthy individuals can avoid this tax through the 'stepped-up basis' loophole, which allows heirs to inherit assets without paying capital gains tax on the increased value.

💡Stepped-Up Basis

The stepped-up basis is an accounting method that allows the cost basis of an inherited asset to be its market value at the time of the previous owner's death, rather than the original purchase price. This can significantly reduce the capital gains tax liability of the inheritors, as explained in the video, contributing to the perpetuation of wealth concentration.

💡Wealth Tax

A wealth tax is a levy on the total value of personal assets, not just income. The video suggests implementing a new wealth tax on wealth in excess of $1 million at a rate of 2% per year, as a means to address wealth inequality and generate revenue for public investments.

Highlights

Elon Musk's wealth has surpassed $200 billion, illustrating the extreme wealth inequality in the U.S.

The median U.S. worker would need over 4 million years to earn what Elon Musk has, highlighting the income disparity.

America is experiencing a second Gilded Age with wealth monopolization similar to the late 19th century.

U.S. billionaires increased their wealth by $2.1 trillion during the first 19 months of the pandemic.

Wealthy individuals have significant political power, enabling them to reduce their tax liabilities to negligible amounts.

Jeff Bezos paid no federal income taxes in 2007 or 2011, exemplifying tax loopholes for the ultra-rich.

The 400 richest Americans paid a lower overall tax rate than almost anyone else by 2018.

Wealth inequality is significantly larger than income inequality in America.

Wealth grows over time due to economic expansion and increasing asset values.

Personal wealth comes from savings and investments, as well as inheritance.

The wealthiest 1% in the U.S. now own over 35% of the nation's total household wealth.

The stock market surge has primarily benefited the richest 1%, who own half of the market.

Most Americans have not earned enough to save, with 80% living paycheck to paycheck before the pandemic.

The Walton family, heirs to the Walmart empire, exemplify the concentration of wealth among a few families.

An upcoming intergenerational wealth transfer of $30 to $70 trillion is expected over the next three decades.

Concentrated wealth endangers democracy by concentrating power in the hands of a few.

Dynastic wealth contradicts the meritocratic ideal and economic principles of deserved gains.

Gender and racial wealth disparities are exacerbated by wealth concentration.

President Teddy Roosevelt's response to wealth concentration was to implement wealth taxes.

Wealth taxes have eroded due to the increasing political power of the wealthy to reduce their taxes.

Proposed solutions include closing tax loopholes, raising capital gains tax, and implementing a new wealth tax.

A 2% annual wealth tax on wealth over $1 million is suggested to generate revenue for social investments.

Individuals are encouraged to understand and demand action on wealth inequality from political representatives.

Transcripts

Elon Musk's wealth has surpassed $200  billion. It would take the median U.S.

worker OVER 4 MILLION YEARS to make that much. Wealth inequality is eating this country alive.

We’re now in America’s second Gilded Age,

just like the late 19th century when a handful  of robber barons monopolized the economy

kept wages down, and bribed lawmakers.

While today’s robber barons take joy rides  into space, the distance between their

gargantuan wealth and the financial struggles  of working Americans has never been clearer.

During the first 19 months of the  pandemic, U.S. billionaires added $2.1

TRILLION dollars to their collective wealth.

And the rich have enough political power  

to cut their taxes to almost nothing  — sometimes literally nothing.

In fact, Jeff Bezos paid no federal  income taxes in 2007 or in 2011.

By 2018, the 400 richest Americans paid a  lower overall tax rate than almost anyone else.

But we can't solve this problem unless we  know how it was created in the first place.

Let’s start with the basics.

Wealth inequality in America is  far larger than income inequality.

"Income" is what you earn each week or month or  year. "Wealth" refers to the sum total of your

assets — your car, home, art — anything else you own that’s valuable.

Valuable not only because there’s  a market for it

— a price other people are willing to pay to buy it —

but because wealth itself grows.

As the population expands and the  nation becomes more productive,

the overall economy continues to expand. This  expansion pushes up the values of stocks,

bonds, rental property,  homes, and most other assets.

Of course recessions and occasional depressions  can reduce the value of such assets.

But over the long haul, the value  of almost all wealth INCREASES.

Next: personal wealth comes from two sources.

The first source is the income you earn  but don’t spend. That’s your savings.

When you invest those savings in stocks,  bonds, or real property or other assets,

you create your personal wealth, which, as we’ve seen, grows over time.

The second source of personal wealth is whatever  is handed down to you from your parents,

grandparents, and maybe even generations  before them — in other words, what you INHERIT.

The wealth gap between the richest  Americans and everyone else is staggering.

In the 1970s, the wealthiest 1% owned about  20% of the nation’s total household wealth.

Now, they own OVER 35%. Much of their gains over the

last 40 years have come from a dramatic  increase in the value of shares of stock.

For example, if someone invested $1,000 in 1978 in  a broad index of stocks — say, the S&P 500 — they

would have $31,823 today, adjusted for inflation.

Who's benefited from this surge?

The richest 1%, who now own  HALF of the entire stock market.

But the typical worker’s wages have  barely grown. Most Americans haven’t

earned nearly enough to save anything.

Before the pandemic, when the economy appeared to be doing well,

almost 80% were living paycheck to paycheck.

So as income inequality has widened, the  amount that the few high-earning households

save — their wealth — has continued to grow. Their growing wealth has allowed them to pass

on more and more wealth to their heirs. 

Take, for example, the Waltons — the family behind the Walmart empire —

which has seven heirs on the Forbes billionaires list.

Their children, and other rich  millennials, will soon consolidate

even more of the nation’s wealth. America is  now on the cusp of the largest intergenerational

transfer of wealth in history.  As wealthy boomers pass on,

somewhere between $30 to $70 TRILLION will go  to their children over the next three decades.

These children will be able to  live off of this wealth, and then

leave the bulk of it — which will continue  growing — to their own children … tax-free.

After a few generations of this,  almost all of America’s wealth

could be in the hands of a few thousand families.

Concentrated wealth is already  endangering our democracy.

Wealth doesn’t just beget more  wealth — it begets more POWER.

Dynastic wealth concentrates power into  the hands of fewer and fewer people,

who can choose what nonprofits and charities  to support, and which politicians to bankroll.

This gives an unelected elite enormous sway  over both our economy and our democracy.

We might come to resemble the kind of dynasties  common to European aristocracies in the

seventeenth, eighteenth, and nineteenth centuries. Dynastic wealth makes a mockery of the idea that

America is a meritocracy, where anyone can  make it on the basis of their own efforts. 

It also runs counter to the basic economic ideas  that people earn what they’re worth in the market,  

and that economic gains should go to those who deserve them.

Finally, wealth concentration magnifies gender and  race disparities because women and people of color

tend to make less, save less, and inherit less.

The typical single woman owns only 32 cents of  

wealth for every dollar of wealth owned by a man.

The pandemic likely increased this gap. 

The racial wealth gap is even  starker. The typical Black household  

owns just 13 cents of wealth for every dollar  of wealth owned by the typical white household.  

The pandemic likely increased this gap, too. In all these ways, dynastic wealth creates a  

self-perpetuating aristocracy that runs  counter to the ideals we claim to live by.

The last time America faced anything  comparable to the concentration of wealth  

we face today was at the turn of the 20th century. 

That was when President Teddy Roosevelt warned  that “a small class of enormously wealthy and  

economically powerful men, whose chief  object is to hold and increase their power,”  

could destroy American democracy. Roosevelt’s answer then was to tax wealth.

Congress enacted two kinds of wealth taxes.

The first, in 1916, was the estate  tax

— a tax on the wealth someone has  accumulated during their lifetime,  

paid by the heirs who inherit that wealth. The second tax on wealth, enacted in 1922,

was a capital gains tax — a tax on the increased  value of those assets, paid when those assets are sold.

But both of these wealth taxes have shrunk  since then, or become so riddled with loopholes  

that they haven’t been able to prevent a  new American aristocracy from emerging. 

The Trump Republican tax cut enabled individuals  to exclude $11.18 million from their estate taxes.  

That means ONE COUPLE can pass on more  than $22 million to their kids tax-free.

Not to mention the very rich often find ways  around this tax entirely. As Trump’s former White  

House National Economic Council director Gary Cohn put it, “Only morons pay the estate tax.”

What about capital gains on the soaring  values of wealthy people’s stocks,  

bonds, mansions, and works of art? Here, the biggest loophole is something called the  

stepped-up basis. If the wealthy hold on to their  assets until they die, their heirs inherit them

without paying any capital gains taxes whatsoever. All the increased value of those assets is

simply erased, for tax purposes. This loophole  saves heirs an estimated $40 billion a year.

This means that huge accumulations of wealth  in the hands of a relatively few households

can be passed from generation to generation  untaxed — growing along the way — generating

comfortable incomes for rich descendants who  will never have to work a day of their lives.

That’s the dynastic class  we’re creating right now.

Why have these two wealth taxes eroded?  Because, as America’s wealth has concentrated

in fewer and fewer hands, the wealthy have more  capacity to donate to political campaigns and

public relations — and they’ve used that  political power to reduce their taxes.

It’s exactly what Teddy Roosevelt  feared so many years ago.

So what do we do? Follow the wisdom of Teddy  Roosevelt and tax great accumulations of wealth. 

The ultra-rich have benefited from the American  system — from laws that protect their wealth,  

and our economy that enabled them to  build their fortunes in the first place.  

The majority of Americans, both  

Democrats and Republicans, believe the  ultra-rich should pay higher taxes. 

There are many ways to make them do so:  

Closing the stepped up basis loophole, raising  the capital gains tax, and fully funding the

Internal Revenue Service so it can properly  audit the wealthiest taxpayers, for starters.

Beyond those fixes, we need a new wealth  tax: a tax of just 2% a year on wealth  

in excess of $1 million. That’s hardly a drop in the bucket for  

centi-billionaires like Jeff Bezos and Elon Musk,  but it would generate plenty of revenue to invest in  

healthcare and education so that millions  of Americans have a fair shot at making it.

One of the most important things you as an  individual can do is take the time to understand

the realities of wealth inequality in America  and how the system has become rigged in favor of  

those at the top — and demand your political  representatives take action to unrig it. 

Wealth inequality is worse  than it has been in a century. 

We have to stop this vicious cycle — and demand an  economy that works for the many, not one that  

concentrates more and more wealth  in the hands of a privileged few.