White Americans Have a Reason to Be Mad about Wealth Inequality By William Elliott, Elizabeth Burland, Briana Starks, and Trina Shanks Working Paper CENTER ON ASSETS, EDUCATION & INCLUSION aedi.ssw.umich.edu Abstract Information about the nature and extent of wealth inequality among Whites can play a role in eliminating misconceptions and reframing the discussion about wealth redistribution as essential to restoring hope in the American dream and imperative to improving the life chances of all. Using data from the Panel Study of Income Dynamics, we find that the top quintile of White wealth holders has 1,400 times as much wealth as the bottom quintile. Further, multi-dimensional descriptive analyses from 1999 to 2015 indicate that median wealth has increased 46% among White households in the top 20% of both the wealth and income distributions. During the same time period, wealth holdings decreased among White household in the bottom 20% of both economic distributions. These data suggest that wealth inequality is a problem not only for Black households in America, but for White households as well. Thus, wealth inequality is not just a question of discrimination and racial disadvantage but is rooted in the fundamental nature of the American economy. 2 Social psychologist Melvin Lerner (1980) hypothesized that people are inclined to perceive of the world as just. The ideal of the American dream—in which effort and ability determine who succeeds and who fails—encapsulates how many Americans perceive a just world (Rank, Hirschl, & Foster, 2014). Given that most Americans continue to hold to the idea of the American dream (Smith, 2017), we posit that Americans are prone to perceive income and wealth inequality, at the root, as resulting from a lack of effort and ability (i.e., merit) making them susceptible to such arguments. Further, research shows that beliefs in choice and merit influence approval and maintenance of inequality (Mollerstrom & Seim, 2014; Savani & Rattan, 2012). We also posit that some White individuals believe redistributing wealth would disproportionately benefit Black families and would be unmerited. This orientation stems from their belief that much of the Black/White wealth gap results from a lack of effort on the part of Blacks (e.g., Economic Mobility Project, 2009; Gilens, 1999; YouGov, 2012). As such, redistribution is seen as anti-American. This is not to say that race alone shapes people’s thoughts about redistribution; rather, race has been an important tool that those opposing redistributive policies use to garner support and control the conversation around redistributive policies (e.g., Carten, 2016). Not surprisingly then, current narratives regarding redistributive policies have been cast, often indirectly as part of a broader conversation about government assistance and “big” government, as anti-American (i.e., favoring those who do not work hard, often a euphemism for non-White). Government assistance requires increased government revenues, drawn largely from taxes. As such, the wealthy often view taxation as a threat from which they need protection. Small-government arguments favor those with wealth, suggesting that government’s primary role is to enforce and protect property rights from domestic and foreign threats. Expanded government spending is permissible, but only 3 insofar as it protects the wealth of the wealthy (e.g., military or law enforcement expenditures). Thus, we see that conversations about wealth redistribution are not only about wealth but also about the size and role of government, and the structure of government assistance. These conversations capitalize on Americans’ felt—if not experienced—aim to construct a just world in which effort and ability determine success and failure. For instance, former Speaker of the House of Representatives John Boehner blamed unemployment on those who would “rather just sit around” (in Krugman, 2014, June 4, para. 1). Similarly, Senate Majority Leader Mitch McConnell claimed that businesses have “a hard time finding people to do the work because they’re doing too good with food stamps, Social Security and all the rest” (Everett & Bresnahan, 2015, September 14, para. 13). Representative Paul Ryan divided the country between those who rely on public assistance and those who “want the American dream” (Grim, 2012, para. 3), suggesting that the economically disadvantaged are outside mainstream American values. While these comments do not speak directly to redistributive policies, they do seem to presume that government assistance rewards those who do not work hard and that government, therefore, should provide no assistance, or only provide assistance in limited circumstances. Somewhat paradoxically, most Americans simultaneously—and overwhelmingly— believe that wealth distribution in the United States is unfair (Newport, 2015). What allows Americans to hold such contradictory beliefs? We suggest that it stems from America’s race history, including how Whites who hold considerable wealth acquired that wealth. This omission is problematic as the incomplete understanding of what perpetuates disadvantage. Perhaps more important than understanding why Americans hold 4 contradictory beliefs about wealth inequality is understanding why they support policies that maintain the wealth distribution they deem unfair?1 We suggest that, at least in part, these contradictory beliefs Americans hold are sustained for four reasons: (a) the perception that income polices are for the poor and wealth policies for the wealthy; (b) a belief in trickledown economics; (c) portrayal of wealth inequality as a Black problem; (d) and low- and middle-class Whites’ social and economic frustration. In identifying these underlying causes, we attempt to make explicit lexicon about redistributive policies that helps make low- and middle-class Whites less inclined to unite with low- and middle-class Blacks in adopting redistributive policies (Williams, 2017). Income Policies are for the Poor; Wealth Policies are for the Wealthy Even though many Americans may equate personal income with wages (i.e., pay for work), personal income consists of wages, capital income (e.g., business profits, dividends, net capital gains, taxable interest, and tax-exempt interest), and transfers. The wealthy in America understand that their capital income makes up a significant portion of their personal income. Further, America’s wealthy recognize that having an income source that is somewhat insulated from labor market forces provides an additional layer of financial security. Among the top 1% of U.S. households, only 39% of personal income is derived from wages while 53% is capital income (Rosenberg, 2013). Most wealthy Americans place a premium on protecting their capital income. As a result, wealthy 1It is not always the case that poor Whites support small government policies. For example, Paige, Bartels, and Seawright (2013) argue that the American political system ensures that those who have wealth have disproportionate influence; thus polices reflect their preferences. However, President Donald Trump’s rallies suggest that some poor Whites support tax cuts that disproportionately favor the wealthy. 5 Americans often pursue policies that help them to increase their wealth holdings (e.g., lower taxes) and preserve their existing wealth advantage (e.g., see Gilens & Page, 2014). In contrast, those who are at or near poverty level often focus their economic attentions on their labor market outcomes. These Americans make demands for higher wages (Bernstein & Spielberg, 2016) and more adequate benefits (Associated Press, 2010), but rarely protest for greater access to wealth-building policies. In part, this focus is the result of lower-wealth groups having experience with only wages as an income source. Few American households have enough wealth to pay attention to the policies that could help them amass greater wealth (Shapiro, 2017). As recently as 2015, nearly 9 million American households were unbanked, with evidence suggesting that, of this number, most were low-income households (Federal Deposit Insurance Corporation, 2015). Given their lower-income status, these households have few interactions with mainstream financial institutions and no opportunity to see their paychecks augmented by capital earnings or other wealth-creation structures, such as property ownership and employer benefits. For these households, earned income from their work effort is often the total of their economic well-being. As the functionality of work as an instrument of financial security and upward mobility declines (Chetty, Friedman, Hendren, Jones, & Porter, 2018), a myopic emphasis on the rewards to labor—rather than the levers of capital—might doom the prospects of millions who, today, work for their living. The tendency of the wealthy to emphasize policies that give them the lion’s share of wealth and the tendency of lower-income Americans to emphasize policies that provide just enough income to survive, have also allowed the policy discussion around poverty to assume its current form among both liberals and conservatives. Currently, income policies are perceived as pertaining largely to low-income households and wealth policies as 6 pertaining largely to upper-income households. Any meaningful attempt to reduce wealth inequality will require a government transfer of wealth from the wealthy to the non- wealthy (Darity et al., 2018; Blinded, 2018). A more cynical view might suggest that the wealthy have financed