Excessive Wealth Has Run Amok—This Must Stop

I’ve been a student of inequality for a long time—as a curious child and later as a sociology professor. Eventually, I left academia and came to work at the Insight Center for Community Economic Development as the research director for a project known as the Closing the Racial Wealth Gap Initiative, where I noticed a stark pattern.

While much effort went into developing and amplifying wealth building strategies in communities of color, discussion about “the other extreme” of the wealth gap—that is, limiting the excessive concentration of wealth, which is largely held among White men—has long been off-limits.

The effects of excessive wealth can be seen throughout US society—in the high rents resulting from private equity acquisition of housing, in tax structures, and in billionaire domination of our political system. If we are serious about narrowing the racial wealth gap, this silence needs to change.

It’s time to change public policy to do away with excessive wealth and its corrosive effects on our lives, our society, and our democracy.

Why Excessive Wealth Matters

Academics and nonprofit activists have long talked about income inequality—and, more recently, have begun to address the more significant issue of wealth inequality. But reducing wealth inequality is not just about increasing the wealth of those with too few assets. It also requires setting standards about what it means to have too much—and enforcing those.

This goes against the grain of a lot of conventional wisdom. We are told it doesn’t matter how much the wealthy make, provided others can get by. Now, I am not arguing that economics is zero-sum and that the only way to improve the welfare of those at the bottom is to take from those at the top. Nor am I saying that everyone must have the same level of wealth.

But I am saying there is a limit after which increased wealth creates more harm than good. This starts with a simple and obvious point: excessive wealth begets more excessive wealth. Some excessively wealthy individuals have fortunes and balance sheets larger than the gross domestic product (GDP) of entire countries. The ultra-wealthy behave with an insatiable hunger for more individual wealth and power, with no end in sight.

This makes the accumulation of excessive wealth an inherent danger for society—and the institutions that strengthen, sustain, and stabilize it. Conceptually, the threshold for excessive wealth would be the point at which an individual can take the government hostage or otherwise damage democratic institutions.

What level would that be? While making a precise calculation is difficult, I would argue that a fair place to draw the line would be at the top tenth of one percent—a level that presently applies to people who have over $43 million in assets.

How excessive wealth endangers democracy becomes clearer if one looks at the “life cycle” of wealth—from the moment of wealth extraction to how wealth is stored and how that wealth buys political influence that entrenches its power. To interrupt this pattern, public policy must, at minimum, implement policies that tax wealth to cut down on the excessive concentration of wealth over time.

Wealth Extraction

Wealth can come from many sources, and not all wealth accumulation is from exploitation. Some people, of course, become wealthy through luck and/or talent. The excessively wealthy, however, are not, by and large, business owners and retirees who have accumulated their personal wealth slowly or through small inheritances. Rather, excessive wealth almost invariably originates in the extraction of wealth from people, the planet, and the political system.

If you look at the evolution of wealth, it is most often extracted from people through exploited labor—in US history, much of the wealth accumulation in the 18th and 19th centuries occurred through slavery and the theft of land from Indigenous people.

Since the birth of the United States, the federal government has seized over 1.5 billion acres of land by treaty or executive order from Native people through military conquest, colonization, genocide, relocation, and outright land theft. Ramifications of this land seizure are still being felt today. In December of last year, the Department of the Interior announced the conclusion of the Land Buy-Back Program for Tribal Nations. The decade-long effort to consolidate and return land to Indigenous peoples resulted in the restoration of nearly three million acres across 15 states to tribal trust ownership and $1.69 billion paid to more than 123,000 Indigenous people.

US capitalism was built on the backs of enslaved people and the slave economy. Slavery became the economic engine of the United States, fueling wars and building industries, including agriculture, banking, small business, and manufacturing. Wealth is also extracted from the earth—from mining to fracking.

Excessive wealth, once acquired, is often dynastic and multigenerational. This is why the nation’s wealthiest families continue to get richer, even as the middle and working classes struggle. The wealthiest families own some of the country’s most notable brands and have their hands in powerful industries, continuing to amass and pass down exorbitant wealth and, consequently, power and influence.

Wealth is also extracted through political systems and structures. Government procurement, such as the billion-dollar-plus fortune that Ross Perot gained from Medicare and Medicaid contracts, is one obvious route. Pentagon contracting functions similarly. In these ways, concentrations of wealth serve as a kind of center of gravity.

But the rules governing the attraction of wealth to wealth are not laws of nature, nor are they immutable. These systems and structures are rigged to extract the maximum amount of wealth from those communities least able to afford it. For example, the high cost of debt relies on labor exploitation since borrowing is commonly driven by the fact that people who borrow make too little from their labor to cover their cost of living.

Wealth Hoarding

Once wealth is extracted and concentrated in the hands of the excessively wealthy, that wealth is warehoused and hoarded. There are two primary ways wealth is hoarded: private and public.

Let’s look at the private path first. The ultra-wealthy use private equity to enhance their long-term portfolios and assemble monopolies that cement their power, influence, and control in our everyday lives. According to the latest data by Swiss Bank UBS, which surveyed the firm’s billionaire clients from around the world, billionaire investors favor private equity, with nearly 60 percent looking to raise direct private equity investments and 55 percent looking to invest in private equity funds.

Take Jeff Bezos. Last year, Jeff Bezos donated $120 million to fight homelessness, then invested over $500 million in a venture that will likely make it worse. By backing a real estate investment company that is snatching up single-family homes, Bezos is making it harder for Americans to buy a home or secure affordable housing, which will, in turn, force thousands to seek shelter in the streets because they can’t afford a place to live.

Public policy also helps buoy wealth accumulation. Even as millions rely on the government for social services and benefits, the government nonetheless facilitates wealth hoarding through a tax system rigged to maintain excessive wealth. At its most basic level, the tax system is simply not progressive enough, as it taxes excessive wealth at the same rate as moderate wealth. Income, for example, is taxed at 37 percent for every dollar over $609,350, whether it exceeds that limit by $1 or $10 million.

But it is far worse than that. Income derived from wealth is taxed at a much lower rate than income that is derived from labor. Income tax on capital gains—that is, gains from an asset or a valuable thing that someone owns, such as stock or real estate—is only taxed if the asset is sold. Short-term capital gains on assets held for a year or less are taxed based on ordinary income tax brackets, but long-term gains on assets held for more than a year get preferential rates of a maximum of 20 percent (compared to a top rate on wage income of 37 percent). This is why billionaire Warren Buffett famously said he paid a lower rate on his taxes than his secretary.

On top of that, there is the question of an effective tax rate. The extremely wealthy can often shield most of their wealth from income tax altogether. For example, a recent report by Americans for Tax Fairness, based on Federal Reserve data on household income and wealth, found that US billionaires and centimillionaires (those with over $100 million of wealth) collectively held at least $8.5 trillion of “unrealized capital gains” in 2022. The tax rate on unrealized capital gains is zero. As a result, these households paid an estimated overall effective tax rate of only 4.8 percent.

The tax system is also implicated in the abuse of philanthropic giving. Philanthropy is supposed to be a means for people to support the public good. However, it can serve as yet another way the tax system disproportionately benefits the excessively wealthy and allows them to hoard their wealth by evading taxes.

When the wealthy establish foundations and contribute money to these foundations, they receive tax benefits. For every dollar donated by the excessively wealthy, our government loses—and by extension, the public loses—74 cents of revenue. Foundations are only required to pay out 5 percent of their assets annually, and many achieve this not by contributing to the public good but by funding their overhead costs, for example. Donor-advised funds (DAFs) have exacerbated the problem. DAFs do not have any payout requirement, and foundations can count their contributions to DAFs as contributing to their 5 percent giving minimum.

Finally, the tax system is laden with loopholes that allow the excessively wealthy and the wealth defense industry to execute tricks and take advantage of large gray areas to exploit the system legally. Comprising consultants, attorneys, accountants, wealth managers, and others, this wealth defense industry employs various tools to hide wealth and avoid taxation. The wealth defense industry’s sole professional purpose is to ensure the maintenance and growth of excessive wealth.

Government Capture

Finally, excessive wealth damages our government and democratic processes. The ultra-wealthy use their excessive wealth to infiltrate and impact all levels and aspects of our society and government. When the government is beholden to the excessively wealthy, it does not represent the people.

US political scientists Martin Gilens and Benjamin Page, for instance, found in their research, published in 2014, that “mass-based interest groups and average citizens have little or no independent influence” on US government policy. In short, the US government at present already more closely resembles a plutocracy (rule by the wealthy) than a democracy.

The most obvious way elite control occurs is through the financial support of specific politicians, policies, or legislation. But government capture by the excessively wealthy happens in more subtle ways as well. The backroom deals of the ultra-wealthy influence laws and shape the rules without the public’s knowledge or ability to change the outcomes.

This has been especially true since the notorious 2010 US Supreme Court decision in Citizens United, which flung open the door for billionaires to use Super PACs fueled by anonymous donations to exert influence on US politics by throwing immense resources at advertising campaigns and other tactics to shape public narrative shaping without any real accountability. This influence is also reinforced by the ownership of major media institutions by dynasties of excessive wealth, like the Mercer and Murdoch families, who wield significant control over public discourse in America and can shape it to serve their own interests.

Using income and wealth data from 2004, Material Power Index (MPI) researchers have measured the political influence of the wealthiest Americans to estimate how much power this tiny minority wields. Assigning a base value of one to the average material power position of Americans in the bottom 90 percent, the MPI multiplies this base value for the richest strata in society. They found that the 100 wealthiest Americans had 60,000 times more political power than the average American, who is among the least wealthy 90 percent of the nation’s population.

The workings of this system are cyclical. People with excessive wealth use their political power to acquire more wealth and power. The political system, in short, is used to normalize the continued and always intensifying extraction of wealth.

Three months ago, as I sat across the table from Dr. Carmen Rojas, president of Marguerite Casey Foundation, she offered not a dollar amount to explain what demarcated excessive wealth but a conceptual definition. “If it exploits people, [the] planet, or political power,” she said, “it is excessive.”

Originally published in NPQ.