The wealth gap is growing faster than the income gap — and now, if all U.S. wealth is thought of as 100 slices of pie, the wealthiest one fifth of households would have 90.

By 
The Washington Post

The wealthiest 1 percent of American households own 40 percent of the country’s wealth, according to a new paper by economist Edward N. Woolf. That share is higher than it has been at any point since at least 1962, according to Woolf’s data, which comes from the federal Survey of Consumer Finances.

From 2013, the share of wealth owned by the 1 percent shot up by nearly 3 percentage points. Wealth owned by the bottom 90 percent, meanwhile, fell over the same period. Today, the top 1 percent of households own more wealth than the bottom 90 percent combined. That gap, between the ultrawealthy and everyone else, has only become wider in the past several decades.

Let’s talk a bit about that wealth gap. Wealth, often described as net worth, describes how much stuff you actually have: It’s the value of your assets minus the value of your debts. If you have a $250,000 house but you still owe $200,000 to the bank on it, and you have no other debts or financial assets, that means your net worth is $50,000.

In the United States, the distribution of that wealth is even more skewed toward the top than the distribution of income. For the sake of illustration, let’s say that America is a country of 100 people, and all of the wealth in the country — the homes and land and financial assets — is represented by 100 slices of pie.

That works out to an average of one slice of pie per person, which is exactly what everyone would get if we lived in a society where wealth was equally distributed.

But that’s not the society we live in, and indeed that’s not the society that most of us want to live in either. People generally agree that if you work harder you’re entitled to more of the pie, and that if you don’t work at all, well, barring certain circumstances, no pie for you.

In 2010, Michael Norton and Dan Ariely surveyed more than 5,500 people to find out how they thought wealth should be distributed in this country: How much of the pie should to go the top 20 percent of Americans, and to the next 20 percent, and so on, all the way down to the bottom of the distribution?

On average, respondents said that in an ideal world the top 20 percent of Americans would get nearly one-third of the pie, the second and middle quintiles would get about 20 percent each, and the bottom two quintiles would get 13 and 11 slices, respectively.

In an ideal world, in other words, the most productive quintile of society would amass roughly three times the wealth of the least productive.

Now, let’s take a look at how the pie is actually distributed. These figures come from Wolff’s working paper, and he expands on them further in his new book A Century of Wealth in America.

The top 20 percent of households actually own a whopping 90 percent of the stuff in America — 90 slices of pie! That’s exactly 4½slices per person, nearly triple their “ideal” share according to Norton and Ariely’s survey respondents. Their average net worth? $3 million.

That leaves just 10 percent of the pie for the remaining 80 percent of the populace. The next 20 percent of households (average net worth: $273,600) help themselves to eight slices, while the middle 20 percent ($81,700 net worth, on average) split a measly two slices.

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Don’t go feeling too sorry for that middle quintile, though — at least they get some pie. The fourth quintile of households gets literally nothing: no pie. But they’re still doing better than the bottom 20 percent of households, who are actually in a state of pie debt: Their net worth is underwater, meaning they owe more than they have. Combined, the average net worth of the bottom 40 percent of households is minus-$8,900.

These figures, staggering as they are, mask a lot of the variation in the top 20 percent. Let’s run those numbers again, breaking out some of the richest households separately.

There’s the top 1 percent, gobbling up an astonishing 40 slices of American pie. The next 4 percent split 27 slices between them, while the next 5 percent take another 12 slices (a little over two slices per person). The bottom 10 percent of the top 20 percent get, on average, one slice of pie each. But don’t feel too bad for them: Their net worth is, on average, about $740,800.

Among rich nations, the United States stands out for the extent of its wealth inequality. The top 1 percent in the U.S. own a much larger share of the country’s wealth than the 1 percent elsewhere. The American 1 percent gobble up twice as much pie (40 percent) as the 1 percent in France, the U.K. or Canada, and more than three times as much as the 1 percent in Finland.

This kind of extreme inequality is bad for the economy. The Organization for Economic Cooperation and Development, which represents a number of the world’s richest countries including the United States, estimates that inequality has knocked nearly 5 percentage points off the economic growth in those countries between 2000 and 2015.

In high-inequality countries, people from poor households typically have less access to quality education. This leads to “large amounts of wasted potential and lower social mobility,” which directly harms economic growth, according to the OECD.

If you were designing a tax plan to reduce the extreme inequality in the United States, you’d probably try to find ways to redistribute some of the wealth from the richest households to the poorest ones. But the Senate GOP tax plan does precisely the opposite of that, according to the CBO: In the short term the richest households get the biggest tax cuts, while longer term the taxes of the poorest households actually increase.

Estate tax? Cut. Income tax rate for millionaires? Cut (at least in the Senate bill). Corporate tax rate? Biggest rate cut ever.

In the long term that probably means more of the pie for the superrich and less of it for everyone else.

Christopher Ingraham