Wealth Disparities

Wealth disparities exist both within and across societies. The distribution of income and wealth within any given society is a reflection of its class structure. Individual wealth is the total accumulated value of people's assets or property, commonly referred to as their “net worth.” Specifically, net worth is the value of all cash-convertible assets minus the value of all debts. Wealth is distinguished from income in that it includes assets that have a market value and that can generate income, such as dividends from stocks, bonds, or real estate. In contrast to income, which tends to be spent on living expenses, wealth generates more wealth via interest and dividends and is a phenomenon that endures over generations. Thus, wealth allows the rich to get richer. Even though income and wealth are clearly related, the distribution of wealth reflects more inequality than that of income.

In the United States, more so than in any other industrial democracy, wealth is concentrated in the hands of a very small segment of society. Statistics on wealth disparities show how much of the total wealth in a society accrues to each quintile of the population, ranked from highest to lowest wealth. Complete equality would exist if each population quintile owned 20 percent of wealth. According to recent U.S. government statistics, the wealthiest fifth of the population held about 85 percent of all wealth while the lowest fifth held −1.5 percent; in other words, the lowest fifth were in debt. The second richest quintile held 12 percent, the next lower one about 5 percent, and the one below that 1 percent of total wealth. The gap between [Page 1021]the wealthiest segment of the population, measured as the top 1 percent, and everyone else has grown tremendously since the 1980s. Official statistics reflect that until 1972, the top 1 percent held about 24 percent of total U.S. wealth and that by 1998 that proportion had risen to 38 percent. The wealth gap appears to be increasing in times of economic growth, mainly because most of the benefits of a booming economy accrue to the top quintile of the wealth distribution.

The redistribution of income and wealth via the tax system is not as dramatic in the United States as it is in other advanced nations. The tax rates for both the highest and the lowest income group have declined in the past few decades, through a strategy intended to reduce poverty and increase investment from the top. Nevertheless, sales taxes are regressive, which means those with lower incomes spend relatively more of their income on necessities than do the rich. Overall trend data show that the average U.S. family is in increasingly large debt relative to their assets, mainly due to mortgage and credit card debt. The Federal Reserve reported the median net worth of U.S. families in 2004 at $93,100, that of white families at $140,700, that of nonwhite families at $24,800, and that of African American families at $20,400. Since 1995, white net worth has increased by 50 percent but nonwhite wealth, especially that of African Americans, has stagnated and remained at only about 14 to 18 percent of white wealth.

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