Disparities In The 1920s

It is important to understand the origin and history of the wealth gap and the reason it is increasingly widened. The 1920s is known as the Roaring Twenties with significant economic growth, increased prosperity, and increase in the wealth gap. In the 1970s, the income gap between wealthy households and the rest of America increased. The economic slowdown had a significant effect on the middle and lower income taxpayers, while the income for the wealthy continually increased. Currently, the disparity is more apparent than ever. “The United States exhibits wider disparities of wealth between the and poor than any other major developed nation.” In the 21st century, the net worth of a majority of households have decreased, while the median net worth of the wealthier households have seen an increase. A large

portion of the wealth in the bottom 90 percent of individuals consists of their homes, approximately 60%, while only approximately 10% of the wealth for the top 1% consists of their homes. During the Bush II administration, tax cuts were implemented that benefited the wealthy. At the beginning of the Obama administration, he made additional tax cuts, but they were aimed to benefit the low to middle class.

President Obama also decreased the tax cuts for high-income taxpayers in his second term. “At the top of the American economic summit, the richest of the nation’s rich now hold as large a wealth share as they did in the 1920s.” Even amongst the very wealthy, from 1982 till now, the average net worth of the 400 richest Americans went from $230 million to $5.8 billion. Even with inflation, the increase in the average is significant. Not only is the wealth gap large, but there is also a disparity in income. Since 1928, income inequality is at the highest levels its been in U.S. history. The income inequality is large, but the wealth gap is even larger. “…while the highest-earning fifth of U.S. families earned 59.1% of all income, the richest fifth held 88.9% of all wealth.”
The income range is one of the major reasons for the increasing wealth gap. Three additional factors that contribute to the increasing wealth gap are fluctuations in employment, household growth, and education. Employment is always a major topic in the United States, there are many aspects for the fluctuations within employment.

For example, membership in labor unions which typically lead to a higher wage has decreased, and there is also a decrease in employment opportunity with the export of labor to less expensive labor markets. The population is growing, and unlike the 20th century, it is becoming increasingly common for individuals to not get married, and the divorce rate is increasing. With the number of households increasing it skews the data as compared to the past. Additionally, single households will typically have more financial difficulties. As an example, it is more difficult for a single parent to support children, then it is with both parents. In 1970, there were approximately 63 million households, while in 2000, there were approximately 105 million households, but the population increased by 79 million individuals in the period. Education is supposed to provide the necessity for someone to climb the social ladder, but with the increase in individuals getting an education, it has become more competitive to land the desired job. Receiving a bachelor’s degree is becoming increasingly less special, and often people need to continue their education to remain competitive. Higher education is leading to increased student debt, and making it harder for individuals to succeed. Debt is taken into consideration when calculating net wealth, and beside the increasing student debt, many Americans do not spend within their means. A factor that is not as direct, contributing to the wealth disparity has to do with the tax liability. The wealthy are powerful, and they have an abundant amount of resources to help them find the lowest effective tax rate possible. “The top 400 taxpayers faced an average tax rate of 26.38 percent in 1992, which fell to 19.91 percent by 2009.” Although the wealthy have a substantial tax liability, they are able to avoid paying more by utilizing tax planning. One of the major preferential tax treatments affecting the low effective tax rates is due to the low capital gain rate.