Wealth inequality is a major challenge facing modern societies. It can lead to social instability, violence, and unrest. In countries with low wealth inequality, governments redistribute wealth through taxation and other measures. But countries with high wealth inequality must explore new ways to combat the disparity. There are three main ways to address this problem.
One method involves examining the movement of national income. Simon Kuznets used income tax records to look at the shift from lower income to higher income levels. His study found that those families with higher incomes had a 77% share of the country’s total wealth. By comparison, those with lower incomes had only 4% of the nation’s wealth.
Another method involves using CPI-U adjusted data. This measure adjusts for differences in income. Wealth inequalities are still large among white and black families. Moreover, black households’ wealth to income ratios are significantly lower than those of white households. In contrast, white households’ median wealth to income ratios have never fallen below 300 percent. In 2019, the median wealth to income ratio of white households was 395.5 percent.
To close the wealth gap, we must make significant investments in public and private policies. These investments should be large and long-term. Without them, the massive wealth gap between White and Black households will persist. And we must not forget that it will continue to affect generations to come. It is imperative that we address the root causes of this gap.
Another way to address wealth inequality is to improve education. Wealth allows people to invest in their children’s education, start a business, and relocate for better jobs. It also enables them to participate in the democratic process. But many Black households are unable to afford reliable internet or electronic devices to access education online. And while white workers are more likely to work remotely and commute, Black households are not.
The Congressional Budget Office has provided an alternative estimate of the wealth gap in the United States. It takes into account federal taxes, a comprehensive array of cash transfers, and in-kind services. The CBO’s estimate ranges from 0.595 to 0.433, which is lower than the Census Bureau’s estimate of 0.481 percent.
In the United States, wealth is highly concentrated in a small number of people. Those people who are extremely wealthy are disproportionately white. Higher tax rates would help close the racial wealth gap. And even if we do not do anything about wealth inequality, higher taxation would have the effect of improving the wealth gap.
Racial wealth inequality is a complex problem that requires a comprehensive strategy to address. A comprehensive agenda to close the racial wealth gap should include reforms in income taxation, new taxes on wealth and inheritance, and an increase in enforcement efforts. The strategy will ultimately help reduce the concentration of wealth at the top of the economic ladder.