David R. Francis

Is the US system rigged for the rich?

While the poor get social programs worth $365 billion, the rich get more. Subsidies to help the prosperous build wealth added up to $384 billion last year.

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    Income inequality in America is the worst it has been since 1928. Wealth-building subsidies, income tax relief, ballooning CEO salaries, and other factors contribute to the growing imbalance. This cartoon first ran in the Christian Science Monitor on Sept. 28, 2003.
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Everybody knows the rich are getting richer, but why they're getting richer remains something of a mystery. Is the system biased?

The shift of income to the top has occurred in the most prosperous English-speaking nations, such as Australia, Britain, and Canada. But it has been most pronounced in the United States. Thirty years ago, the richest 1 percent of Americans got 9 percent of total national income. By 2007, they had 23 percent. Last year, new census data show, the rich-poor income gap was the widest on record.

Wealth is more unevenly distributed. The top 20 percent of wealth-holders own 84 percent of America's wealth. What's causing it?

One factor is federal policy, says a study by the Corporation for Enterprise Development (CFED) and the Annie E. Casey Foundation. It finds that most federal subsidies aimed at building wealth, such as certain tax deductions (officially called "expenditures"), credits, and preferential rates, go to the richest taxpayers.

Of course, many government programs aim to alleviate poverty. Those with low incomes get Medicaid, food stamps, welfare, etc., adding up to about $365 billion. But Uncle Sam's subsidies for building wealth – of little use to the poor – were even larger: $384 billion last year.

This money helps the more prosperous buy homes, save money, start businesses, pay for college, and retire comfortably. More than half of that sum went to the wealthiest 5 percent of tax-payers. The top 1 percent got an average $95,000 in federal help. Upper-middle-income families making $100,000 got $1,600. The poor got less than $5.

That $384 billion is "under-recognized" by the public, though it comes close to basic expenditures of the Pentagon, says Robert Friedman, board chair of CFED, a community development nonprofit in Washington.

This is more than just a question of inequity. Lower-income families need an opportunity to build their savings so they can better "navigate difficult times," notes Andrea Levere, CFED president. "If we are serious about cutting the deficit, Congress could start by trimming these upside-down subsidies and creating a more equitable approach."

There are other explanations for the increasing concentration of income and wealth.

Copyrights and patents, which extend beyond the life of many inventors, put money in the pockets of successful individuals and their heirs, sometimes at the expense of potential competitors, says Frank Genovese, former business school dean at Babson College in Wellesley, Mass.

Weak antitrust enforcement creates a similar dynamic among companies.

The growing weakness of labor in the US, compared with, say, France or Germany, is another factor, says Gary Burtless, an economist at the Brookings Institution, a Washington think tank.

Marginal income tax rates on the rich have plunged from about 90 percent when President Eisenhower was in office to 33 percent today. Tax loopholes lower the burden even further for wealthy hedge-fund managers.

Cultural factors may also play a role, Mr. Burtless says. There seems to be no shame among corporate executives, bankers, and others at their extraordinarily rich pay packages today. These are now "socially acceptable," he says.

Further, Burtless argues, the rich use their influence in Washington to protect their "fruits."

So why is there no political revolt? Perhaps it's because many Americans think they, too, can be rich with enough work, ingenuity, and opportunity. That aspiration runs deep in the culture.

David R. Francis writes a weekly column.

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