Keep in mind that, if you're filing as a single person, your salary and wages starting at $38,000 are taxed at 25 percent - and from there the rates only go up. In fact, until 2013, the most investment income could be taxed was 15 percent. The most we've taxed investment income is about 40 percent. Even from 1996 to 2006, things changed drastically:īut since the 1970s, we've significantly reduced how much we tax investment income So, what caused this? Wealthy people began making more of their money from investments and business incomeĮveryone else continued to make money on salaries and wages. It's what economists call 'The Great Divergence,' or a great increase in wealth inequality. That lasted until the late-1970s - and you saw what happened from then on. It shows that, from the 1940s through the mid-1980s, the richest one person got a much smaller portion of the whole: Economist Paul Krugman calls this phenomenon 'The Great Compression' because these policies created a lot more parity - and held inequality at bay for about 40 years. This is when we start seeing a strengthening of labor unions, a federal minimum wage, the establishment of Social Security and unemployment insurance, and increased taxes on the wealthy and corporations. We need to go back in time, starting with the 1930s, to really understand. If a few people control most of the money, then they can control political outcomes.

One metaphor often used is that when the rungs of a ladder get further apart, it's harder to climb.īut perhaps the best argument against income inequality, though, is that it's a threat to democracy. Another reason is that it prohibits social mobility - and it turns out social mobility in the US might be worse than once thought. One reasons is it means everyone doesn't share America's economic growth. There are many reasons economists believe wealth inequality is a bad thing In short, we've seen quite an increase in income inequality since the late-1970s. Here's what it looked like in 2014, six years into President Barack Obama's term: Notice how everyone but the richest has a smaller portion of the money. By the time Reagan left office in 1989, this is how that $100 was split up Then in 1981, before Ronald Reagan became president, the wealthy began to get wealthier while the poor got poorer. Things stayed about the same for the next decade and a half. The second 20 percent are wearing orange, and so on: And let's say the dollar bills below represent all the income in America: In 1967, this is how that $100 was split up: The poorest 20 percent are wearing red shirts.

Let's say the 100 figures below represent every household in America Or, you can look at the the cartoon below to understand how the distribution of wealth has changed in America, and why. You can see lots of discussion and debate and political fighting over who has wealth in America, and whether that should change. And there's a reason this message is resonating with voters: Donald Trump's motto is to make America great again, while Bernie Sanders's campaign has focused on reducing income inequality.

Economix corporation caricature