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One Family, Six Heirs, $69.7 Billion

The Walton family, the heirs to the Wal-Mart fortune, provide an object lesson on income inequality. The math is pretty stark. This one family holds as much wealth as the bottom 30% of all Americans.

The triennial Survey of Consumer Finances (SCF) is one of the best sources for data on wealth in the U.S. And, of course the Forbes 400 estimates the worth of the wealthiest amongst us—all 400 wouldn’t be captured in the SCF. If we look at both the SCF and the Forbes 400 we can glean some interesting insights.

In 2007 (the most recent SCF) the cumulative wealth of the Forbes 400 was $1.54 trillion or roughly the same amount of wealth held by the entire bottom fifty percent of American families. This is a stunning statistic to be sure.

Upon closer inspection, the Forbes list reveals that six Waltons—all children (one daughter-in-law) of Sam or James “Bud” Walton the founders of Wal-Mart—were on the list. The combined worth of the Walton six was $69.7 billion in 2007—which equated to the total wealth of the entire bottom thirty percent!

I want to echo what Jared Bernstein says here about how liberals need to look more closely at primary distributions of income rather than secondary ones. Primary distributions are the actual payments of salary and other forms of compensation; secondary distributions are the tax-and-transfer policies set up by governments. In the US, the primary distribution is the source of almost all the inequality; we don’t transfer nearly enough at the secondary level, nor is it clear we could. So the primary distribution, the fact that US CEOs make many times more than their counterparts in other countries, the bonus culture on Wall Street, all of these things must be attacked if the inequality problem can truly be dealt with.

The factors driving the growth in inequality are embedded in the market outcomes, and while increased progressivity can dull their edges and even counteract their longer term impacts (as just noted re access to opportunities), they cannot go far enough. Just think about the dynamics here: if, in a climate of increasingly income inequality, you punt on the primary distribution, then you will be depending on the largesse of the Congress (!!??##&!) to continuously increase the progressivity of fiscal policy. Good luck with that.

I’ve come to view this as a key point to understanding today’s self-limiting politics. The difference between typical Ds and Rs has diminished to the point where both basically agree that unfettered market outcomes should rip, even if they tear the fabric of society. D’s are just more willing to tinker along the edges of the secondary distribution, while R’s scream bloody murder as to how such tinkering will sink the whole operation. Neither side is much willing to go after the real culprit: the fact that the benefits of growth have become disconnected from the economic well being of most of the people helping to generate that growth.

However, that critique only goes so far. As Bernstein does note, higher tax rates at the top marginal levels tend to discourage that primary distribution, the research shows. And that’s especially true across all segments of the tax code. The capital gains and dividend tax rates are pathetically low, and without fixing them, CEOs will just shift their compensation from salary to stock options and take advantage of the plunging taxation rates. Similarly, the Walton family has lobbied furiously to hold onto this fortune they’ve amassed through massive cuts to the estate tax, one of the most successful secondary income distribution policies. The Bush tax cuts slashed the estate tax, and that was extended by the tax cut deal last December.

So I think you need to attack both sides of this equation to make headway on income inequality. Corporate governance and CEO compensation is incredibly important, but so are the transfer policies around inheritance and capital gains taxes. Without strong work on these issues, you end up with one family holding $69.7 billion.

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David Dayen

David Dayen