It's time to raise taxes on the rich

Editor's Note: (Randy Charles Epping is the author of The New World Economy—A Beginner's Guide, Vintage Books, 2020. The opinions expressed in this commentary are his own. )

The coronavirus pandemic has shown just how deeply rooted inequality is in the United States. While tens of millions of Americans have lost their jobs, billionaires in the United States have increased their wealth by a staggering $685 billion since mid-March. Among the major winners are Elon Musk, who just became the world's fourth richest person, and Jeff Bezos, the world's richest person, whose wealth has bloomed to more than $200 billion.

Unfortunately, those at the bottom are disproportionately people of color. Indeed, the first step to reducing racial inequality in America is to find a way to reduce economic inequality — which means getting more money into the hands of those who need it most.

So far, most efforts to reduce the vast gap between rich and poor Americans have centered on providing equal access to jobs and education. But these steps only provide a partial solution. Even if everyone had the same salary, regardless of their race or sex, vast disparities in wealth would not go away any time soon.

The fact is: Ensuring income equality does not necessarily ensure wealth equality. Those who already have assets — primarily a house or a diversified stock portfolio — will almost always see their wealth grow disproportionately faster, even in a world where those at the bottom have commensurate salaries. It is a simple economic fact that wealth begets wealth. And in the United States, it is easy to pass this wealth down from generation to generation, ensuring that the wealth gap will not go away unless we find new ways to address the problem.

Currently, the main efforts of Congress and the Federal Reserve to deal with the economic meltdown caused by Covid-19 have been centered on injecting massive amounts of money into the economy, which has led to sharp rebounds in the financial markets. As a result, those with assets such as stocks and bonds have been the main beneficiaries of the government's largesse. This means that the wealth gap in the United States has actually gotten worse since the pandemic's onset. Basically, this has occurred because the vast majority of the equities owned by US households are held by those at the top while those at the lower levels have virtually no financial assets at all. In fact, it is estimated that approximately one in five Black families in the United States have no wealth whatsoever.

Median net worth for White Americans has been estimated to be nearly 10 times that for Black and Hispanic Americans, and since many low-income Americans have less cash to purchase a home or invest in the stock market, especially in the financially critical early decades of their working lives, they will likely remain in the lower echelons of wealth accumulation for generations to come. Furthermore, since low-income Americans are required to spend a much higher percentage of their money on basics, such as food and transportation, they have less money to invest in wealth-generating ventures. It is clear that the only way to close the income and wealth gap in a sustainable fashion is to find a way to get more wealth-generating assets into the hands of those currently lacking them.

Here are some ways to do that:

A wealth tax

Taxing the country's highest earners and those with the most wealth is the most obvious solution. This has traditionally been done through the use of progressive taxation on earned income, which could be expanded by increasing taxes on those earning a lot — the top 10%, for example. The money generated could be used to supplement the income, and consequently acquired wealth, of those earning less — the bottom 50%, for example.

Universal basic income

At the extreme, a minimum income, sometimes referred to as Universal Basic Income (UBI), can also be used to reduce wealth inequality. It is not an entirely new solution, even in the United States.

The $600 boost to unemployment benefits and the stimulus checks sent to most Americans earlier this year were, in fact, a form of UBI, albeit a temporary one. Another form of UBI would be to send periodic payments to those living below the poverty level. However, fears that this could disincentivize people from going to work have led to calls for these versions of UBI in America to be eliminated or drastically reduced as soon as possible.

Wealth boost

Another solution would use the vast wealth created by the markets over the past years to fund a one-time wealth boost for poor Americans. Those at the top who have seen massive increases in their invested wealth, for example, could have a one-time "capital gains" tax applied to their recent windfall. This money could then be directed to those at the bottom of the economic ladder. This would allow them to purchase wealth-generating assets such as a home, or they could establish a family nest egg, further enabling them to start a business, fund an education or provide for a financially secure retirement.

Will America's wealthy ever agree to such proposals? In these troubled times, even those at the top of the economic pyramid may begin to understand that it is in their own best interests to give up some of their wealth to guarantee an equal-access, fully functioning economy for all.