The massive (and growing) wealth inequality in the US is hindering economic growth in the country, says a new report.
Compiled by consulting firm McKinsey & Company, the new report “quantifies the impact” the wealth inequality gap. Failure to close the gap, leaving the majority of wealth among the super-rich, will cost the economy anywhere from $1 trillion to $1.5 trillion by 2028.
The wealth gap is a particular burden on black Americans. Inequality among middle-class white versus black families has grown steadily over the last 30 years. In 1992 the median net worth of white families was $100,000 above that of black families, but by 2016 the median white family income grew to $152,000 more than the average black family income. The median wealth of white families grew since 1992 by over $50,000 while the median wealth of black families remained stagnant.
McKinsey estimates that if the racial wealth gap was closed the US would add an additional 4% to 6% to its GDP by 2028.
The study used the Oxford model of economic forecasting to come to the above conclusions.
“We modeled economic outcomes for the United States under two distinct scenarios to measure the impact on GDP that would result from closing the wealth gap over the 2019–28 time frame and used income, tangible investments, and stock-market investments as components of wealth in our model.”
The report points out the despite the progress black families have made since the Civil Rights Act of 1964, they still face “systemic and cumulative barriers on the road to wealth building due to discrimination, poverty, and a shortage of social connections” which have all contributed to a persistent and widening wealth gap.
Wealth inequality is a major hot topic of the upcoming 2020 election, especially among Democratic presidential hopefuls. Senator Elizabeth Warren has proposed a tax on the ultra-wealthy that would require ultra-wealthy Americans to pay the federal government a small percentage of their net worth each year. Warren estimates that this wealth tax would generate $2.75 trillion over ten years and could fund programs that benefit poor Americans.
Even many ultrarich Americans who would be affected by any additional wealth tax support the idea. In June a group of American billionaires sent a letter to 2020 presidential candidates stating that the nation has a “moral, ethical and economic responsibility” to implement a wealth tax that could “help address the climate crisis, improve the economy, improve health outcomes, fairly create opportunity, and strengthen our democratic freedoms.”