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Wealth inequality in the United States is a clear sign of democracy’s decline

Wealth inequality is rampant in every state and particularly concentrated in a handful of states, according to a first-of-its-kind analysis released today by the Institute on Taxation and Economic Policy (ITEP).

This extreme wealth hinders economic opportunities for all but the most well-off families, and both reflects and exacerbates racial inequality in ways that are inconsistent with such American values as equality and justice for all.

Tax policy is a critical way that policymakers could start addressing this inequality, but current law is clearly falling short. Federal and state tax codes barely tax extreme wealth at all, and instead often favor sources of income that are derived from wealth.

Related story: Tiny fraction of NJ families hold a staggering amount of all the wealth

Ten states hold 71 percent of the nation’s extreme wealth, while just two states alone – New York and California – hold about a third. The remaining 8 states are, in order, Florida, Texas, Illinois, Washington, Connecticut, Massachusetts, Maryland and Missouri.

“A very small number of households hold a staggering share of nationwide wealth, and they’ve been able to grow their fortunes in part because our tax system asks very little of them,” said Carl Davis, ITEP’s research director and an author of the report. “New and strengthened taxes on extreme levels of wealth could dramatically reduce the runaway inequality we face today.”

The report defines extreme wealth as the wealth held by households with net worth over $30 million. This tiny fraction of families holds more than one in four dollars of wealth in the U.S. We estimate that total extreme wealth will reach $26 trillion this year with roughly one-fifth ($4.5 trillion) held by billionaires.

Other key findings:

In addition to a wealth tax or a tax on unrealized capital gains as outlined above, the report identifies other ways to strengthen the federal taxation of extremely wealthy people, including:

All of these are viable policy options for lawmakers looking to curb wealth inequality.

At the state level, tax codes are already overwhelmingly regressive when it comes to income – and are even more lopsided when it comes to wealth. State lawmakers seeking to fix this imbalance in their tax codes also have several readily available options as identified in the report, such as:

“Runaway wealth inequality is a huge problem that runs counter to the American ideals of democracy, opportunity and fairness,” said Amy Hanauer, ITEP’s Executive Director. “This report shows just how unequal wealth is across the country, and points to commonsense ways that we can use the tax code to decrease inequality and increase opportunity.”

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