Prosperous Period for American Billionaires: How the System Perpetuates Income Disparity

For many US citizens, the financial landscape over the past five years has been difficult. Expenses have escalated while wages remains stagnant. Elevated mortgage rates have made purchasing property a grim prospect. The unemployment rate has been slowly rising.

Many Americans have reported they're delaying major life decisions, including raising children or changing careers, because of financial volatility. But for a tiny fraction of people, the last five years couldn't have been any better.

The Billionaire Boom

The assets of the world's billionaires grew 54% in 2020, at the height of the pandemic. And even amid all the economic instability, the stock market has only kept rising. This expansion has mostly helped just a limited group of Americans: 10% of the population holds 93% of stock market wealth.

Despite the imbalance as this distribution seems, it's the economic framework working as it is currently designed.

"Rich elites have acquired their jets, they've bought their multiple houses and mansions, but now they're acquiring senators and media outlets," stated inequality researcher Chuck Collins. "We're now moving into this other chapter of extreme wealth extraction where the wealthy are taking advantage of the system of inequality."

Analyzing Income Brackets

To help others comprehend what exactly it means to be "wealthy" in the US, Collins borrows a concept from journalist Robert Frank who, in a 2007 book on the rich, imagined the different levels of wealth as "Richistan" villages: Wealth Borough, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To update the concept, Collins categorizes these "affluence districts" based on income levels:

• At the foundation, Affluent Town, are the 10 million Americans who have a family earnings of at least $110,000 and an net worth of over $1.5m.
• The villages get more select as wealth goes up: Lower Richistan has 2.6 million households who have wealth between $6m and $13m.
• Middle Richistan has 1.3 million households who have assets worth an average of $37m.
• Upper Richistan, made up of 130,000 Americans (roughly the size of a small city) has between $60m to $1bn in wealth.

Collectively, the residents of these villages constitute the top 10% of the wealth income distribution, about 14 million Americans altogether, though their circumstances vary dramatically.

"You could be in Lower Richistan, and you're still flying in the coach section of a commercial plane," Collins said. "Whereas in Upper Richistan, you're using a private jet. That's a really separate reality. You fly private, you have no investment in the commercial aviation system. You don't care if the whole system fails – you're set."

The Billionaireville Effect

The summit in "Richistan" is Billionaireville, which is made up of about 800 American billionaires who are some of the world's richest. The control that this group has far surpasses those who are simply wealthy, let alone the ordinary person who doesn't reside in "Richistan" at all.

But Collins thinks the progressive slogan "abolish billionaires" fails to address the core issue and has a "hint of elimination" to it.

"It's the difference between private conduct and a system of rules," Collins said. "We should be worried about an economic system that channels so much wealth upward to the billionaires."

Wealth Accumulation Mechanisms

To understand how wealth at the billionaire level works, Collins breaks it down into four parts: getting the wealth, protecting assets, government influence and hyper-extraction.

When many Americans think about wealth, they usually think solely about the first step, Collins said. People can create a limited sum of wealth through creating or operating a successful business, which could get them residency in Affluent Town.

But getting to Billionaireville requires substantial commitment and tactics in those next three steps. Collins describes what he calls the "wealth defense industry": the tax lawyers, accountants and wealth managers who use their skills to ensure that the super rich are being strategic about their taxes.

"Wealth defense professionals use a broad range of tools such as trusts, foreign deposits, anonymous shell companies, philanthropic entities and other methods to hold assets," he explains.

Government Power and Extreme Wealth Removal

To advance a wealth defense strategy, a family needs political support. Wealth of over $40m translates to political power, Collins says, and can be used to secure fortune and maintain expansion.

The final phase is a different kind of wealth accumulation, one that Collins calls "maximum taking" to describe how the wealthy have come to affect nearly every single part of an Americans' daily existence largely through investment firms, which allows wealthy individuals to support private companies.

"Private equity is seeking those corners of the economy where they can increase profits a little bit harder," Collins said. "One thing I don't think people understand is these billionaire private-equity funds are what happens when so much wealth is accumulated in so few hands, and they can essentially pivot and say, 'Where else can we squeeze money out of the economy?' Healthcare? Great. Mobile home parks? These people can't go anywhere, [so] you can raise their rents."

Tangible Effects

The effects of this inequality go beyond the wealth getting wealthier. It's about people spending additional funds for their healthcare, rent and vet bills without seeing any meaningful wage increases. And Collins said the pain and frustration of this kind of society can lead to serious unrest.

"The most powerful affluent rulers understand people are being marginalized [and] are monetarily hurting," Collins said, adding that conservative politicians have been good at accessing a potent "fake grassroots movement".

Policy Situation

The paradox, Collins points out in his book, is that political leaders have appointed a succession of billionaires to cabinet positions. Along with wealthy entrepreneurs who had temporary but significant roles overseeing massive cuts to the federal workforce, other crucial appointments for commerce, treasury, education and the interior are also all billionaires.

This administrative framework, along with help from congressional allies, helped pass major tax legislation, which will make permanent tax cuts for the wealthy and corporations.

Potential Changes

While legislative bodies continue to argue that immigration and bad trade agreements are the source of everyone's economic problems, "the issue remains: Will the opposing party, which has also been influenced by the billionaires and big money, be able to seriously confront the underlying harms?" Collins said.

Liberal leaders, he argues, know what policies are needed to "alter economic flow", including substantial modifications to the tax system, increasing the minimum wage and empowering worker groups.

"It was so, so close, and the law really did represent the will of the majority of people who really want lawmakers to solve some of these critical challenges," Collins said. "Wealthy influence is not about developing so much as stopping. It's easier to block than it is to make something significant occur, but the muscle memory is there. We know what that looks like."

Collins is positive that there can be change, but said it would require ongoing legislative effort.

"It may be sooner than expected that the tide turns, and then it really is about sustaining a continuous public campaign to make progress on this extreme inequality we're living in," he said. "We can fix this. It is solvable."