Surprisingly, early 1800s Romantic poet Percy Shelley was the first to use the phrase “The rich have become richer, and the poor have become poorer,” in an essay about poetry. But it has little impact today, because everyone knows it’s true. It’s like some of our rhetorical jokes: “Is the sky blue? Is a bullfrog waterproof? Does a wild bear … ?”
Research proves that “the rich get richer,” even in countries like Norway which has a significant wealth tax and “progressive” tax structure. But both the richer and poorer parts are true in capitalist economies like the U.S. One Oxfam study shows that since 2019, 95% of economic growth in the U.S. has gone to the upper 1%, while 70% have gotten poorer.
Why does this process seem inevitable? With apologies to another Romantic poet (from her love sonnet), “Let me count the ways.”
Robert Reich (economics teacher, author, former Secretary of Labor) points out (https://bit.ly/3znhvSu) the difference between income (pay for your work) and wealth (the total of all assets). Working harder and getting a raise may increase your wealth slightly, allowing some room for savings and investments. But if you already have wealth from investments, it increases almost automatically. A house, stocks and bonds, rental property, etc. are always more valuable (adjusted for inflation) after a few decades than they were originally, because the economy grows and becomes more productive. Those with great wealth enjoy almost-guaranteed growth (at a compounding rate), while those who can’t afford basic investments (like a house or business) fall farther behind. Reich notes that if you inherit wealth, you’ll almost certainly remain wealthy.
Two types of taxes, backed by Teddy Roosevelt in the Gilded Age of the early 1900s, tried to address inequalities in wealth rather than income. An estate tax and a capital gains tax (tax on profits from the sale of property or stocks, etc.) became law, but have been systematically whittled down or shot full of loopholes since then. The 2017 tax cut under President Trump allows families to pass down $22 million tax-free, wealth that can grow exponentially for generations. (Previously, a Trump adviser said that only “morons” pay estate tax.)
For capital gains, a “stepped up” method allows people to hold onto profits until they die, so heirs pay no tax on them whatsoever. This loophole costs the U.S. about $40 billion in taxes each year.
There are many other reasons the rich keep getting richer: better rates on loans because of minimal default risks; developing multiple income sources so a decline in one isn’t devastating; owning the largest share of stocks (92% owned by the upper 10%) which perpetually gain value; access to services (professional money managers, large law firms) that others don’t have; etc., etc. But a big part of the can’t-lose scenario is that they can influence elections, backing candidates who make laws favoring them (made even easier since 2010’s Supreme Court Citizens United ruling).
A recent New Yorker article describes how two of those advantages (hiring top-level law firms, influencing lawmakers and judges) dovetail perfectly as Johnson & Johnson attempts to evade billions of dollars in liability for its production and promotion of talcum powder they knew contained cancer-causing asbestos. The “Texas two-step” is a corporate dance move first used by the Koch brothers to limit damages in another asbestos case. Since then, it has helped minimize payments to victims by opioid-pusher Purdue Pharma, and to sexual abuse victims of Boy Scouts of America, Catholic dioceses, and USA Gymnastics.
The first step uses a 1989 Texas law allowing corporations to split into two or more entities and assign all current and future liabilities to one while allowing another to continue its previous business activities. The company that absorbed the liabilities then takes the second step: declaring bankruptcy in North Carolina so that any claims are paid from its now-shallow, bankrupt pockets (while paying its own lawyers as much as $2,500 per hour in the Johnson & Johnson case).
The Texas two-step is designed specifically to help rich corporate investors retain and increase their wealth, while those who have been victimized by predatory institutions or companies selling products known to be extremely hazardous will remain poor.
One web site dispensing economic wisdom is called “The Sport of Money.” If it is a sport, it‘s one in the mold of the Roman Colosseum when the Christians were pitted against the lions. The lions won every time: today’s lions continue to sharpen their claws.
Allen Woods is a freelance writer, author of the Revolutionary-era historical fiction novel “The Sword and Scabbard,” and Greenfield resident. His column appears regularly on a Saturday. Comments are welcome here or at awoods2846@gmail.com.