Wealth Inequality in the United States.

• Author: Wolff, Edward N.

Much attention has focused in the last few years on the issue of inequality. With recent proposals for a direct wealth tax, particular attention has been given to wealth inequality. My work also focuses on this issue. Here, I summarize studies of four different aspects.

First, what are the general trends in wealth and wealth inequality over the last 60 years or so in the United States? I pay particular attention to the role of leverage and asset price movements in explaining these trends. Second, how has the racial wealth gap evolved over time, and what are the factors that account for its movement? Third, how does one account for the fact that certain assets like 401(k)s are tax-deferred? How does this affect the valuation of these assets and how does this impact measured inequality and wealth movements over time? Fourth, how might a direct tax on household wealth impact wealth inequality?

The Role of Leverage

In the first study, I examine wealth trends from 1962 to 2019. (1) My empirical work in this and the next three papers is based mainly on data from the Federal Reserve Board's Survey of Consumer Finances. In terms of median wealth, the year 2007 stands out as a true high-water mark. Median net worth in constant dollars showed robust growth over 1962-2001, gaining 1.55 percent per year, and rose even faster over 2001-07, at 2.90 percent per year. Then the Great Recession hit like a tsunami and wiped out 40 years of gains. Over 2007-10, house prices fell 24.5 percent in real terms, stock prices declined 26.6 percent, and median wealth was reduced by a staggering 43.9 percent. By 2010, median wealth was at about the same level as in 1969.

However, between 2010 and 2019 asset prices recovered, and median wealth advanced by a robust 41.9 percent. Still, it was 20.4 percent below its 2007 peak. Mean wealth more than fully recovered by 2016 and by 2019 it was up 9.2 percent from its 2007 level.

Wealth grew more vigorously at the top of the wealth distribution than in the middle. Indeed, according to the Gini coefficient and top wealth shares, wealth inequality rose sharply from 1983 to 1989 (the Gini coefficient was up 0.029), remained relatively stable from 1989 to 2007, then showed a steep increase over 2007-10 (the Gini was up 0.032), and a more modest rise from 2010 to 2016. By 2016, the Gini coefficient and the share of the top percentile were at their highest levels of the 57 years of the study period, at 0.877 and 39.6 percent, respectively. However, from 2016 to 2019 there was actually a small decline in inequality, with the top percentile share down by 1.4 percentage points, the Gini coefficient down by 0.008, and the mean wealth of the top 1 percent down by 1.9 percent.

Another notable trend is the sharp increase in relative debt after 1983, with the debt-income and the debt-net worth ratios peaking in 2010 and then receding. The overall homeownership rate rose from 63.4 percent in 1983 to a peak of 69.1 percent in 2004, then fell off to 64.9 percent in 2019. The overall stock ownership rate--either directly or indirectly through mutual funds, trust funds, or pension plans--after rising briskly from 31.7 percent to a peak of 51.9 percent over...