Tariffs are once again in the news because President Trump recently implemented them against a number of our trading partners. The argument behind tariffs are that while they may raise consumer prices in the short-term, they will result in more manufacturing jobs in the long-term.
In reality they are a form of regressive tax which means they hit poorer people harder than they do wealthy people. This is because tariffs are a tax that is most often passed on to the end consumer. Me and you.
Prices for basic goods will go up, meaning all the things we need to live our daily lives will cost more. Think about how this will impact people on a fixed income such as elderly retirees. Or how it will affect a single parent raising a child. Or someone just trying to work their way out of poverty.
Wealthy people, on the other hand, can absorb these costs better because they are less of a share of their overall income. But for the rest of us, a 10% or 25% increase in basic goods will hit our wallets very hard.
Add to this regressive tax the Republican budget that is being debated that extends Trump’s tax cuts from his first term. These tax cuts heavily favor the rich. Both of these factors, the tariffs and the tax cuts, represent a redistribution of wealth upward.
In regards to tariffs bringing back domestic production, manufacturing output in the United States actually hit an all time high in 2023. The issue is that automation and now artificial intelligence has shrunk the number of workers needed in the production process. Looking at the chart below, it is easy to see the decline in manufacturing jobs in juxtaposition to a steady increase in manufacturing.
Figure 1: Chart showing the decline of manufacturing employment (red), the increase of manufacturing as gross domestic product (green), and as real gross domestic product (blue).
So, the idea of a manufacturing renaissance in America that rebuilds the middle class is a good narrative to sell, but only if you don’t factor in automation and AI. In reality, this is just another shift of wealth upward.
Sources:
Figure 1
From Wikipedia, ultimate source is Federal Reserve Economic Data
One of the primary issues affecting our society right now is the unequal distribution of wealth. As the saying goes, the rich get richer and the poor get poorer. But in the past 30-35 years, this gap between the ultra wealthy and the rest of us has gotten increasingly wider.
This is a topic that doesn’t get discussed very often in the mainstream media, and there is a lack of knowledge and understanding about it. So let’s look at a few charts that will help us get a sense of just how much wealth inequality has grown in the US and why.
Figure 1: Showing the distribution of wealth among different income percentiles in 2024.
The first chart shows the percent of ownership of wealth in the US by different economic brackets. The top 0.1% own 13.5% of total wealth in the US. Those people in the 99 to 99.9 % bracket own 16.7% of total wealth. Then those in the top 90 to 99% bracket own 35.5% of the total wealth.
This means that the top 10 percent of wealthy people in this country own 65.7 percent of all the wealth. Meanwhile, 66,551,860 million Americans in the bottom 50% hold only 2.5% of wealth.
It hasn’t always been this way, though. During the Postwar Era into the 1970s, there was a sort of shared prosperity in the United States, but this began to unravel during the trickle-down era of Presidents Reagan and George H.W. Bush.
In Figure 2, shown below, we can see the growth in the share of national wealth owned by the different economic brackets. From 1989 onward, the share of wealth owned by the bottom 50% of Americans has not really grown, remaining relatively flat. But for the top 50% and above, especially the ultra-rich, their share of wealth in this country has exploded.
Figure 2: Showing the change in wealth ownership per percentile from 1989 to 2020.
Looking further back, we can see some factors that helped this wealth inequality to take off in the late 1980s and early 1990s.
Figure 3: Showing the tax rate for the top income bracket in the US tax code, from 1945 to 2022.
According to Figure 3, the tax rate for the top income bracket in the United States started dropping from the wartime high of over 90% in the postwar period through the 1970s. Beginning in 1982 and lasting through the early 1990s, however, taxes on the top income bracket were cut significantly. In 2022, the average tax rate for top earners was actually around 23 percent. This is quite a change from the post war period.
This reduction of the top tax rate was done according to the trickle-down theory of economics where if the rich could keep their money, they would invest it in ways that helped the overall economy and regular people. But this is not how rich people operate, and it is not what has happened at all. They have invested it in luxury goods, property, and in controlling the political process.
Figure 4: Showing Productivity Growth versus hourly compensation growth from 1948 to 2024.
In this figure, the relationship between productivity and wages is examined. Between 1948 and 1979, the growth in productivity and wage increases were relatively the same. But between 1980 and the present, they have become unbalanced, with the average yearly wage increase being only 0.6% per year after 1980, compared to 2.1% per year before.
In short, those who own the workplace have gotten more production from American workers and have had to pay less wages for it. That difference in money has to go somewhere, and it has gone to the top.
Figure 5: Showing the growth in real wages, as adjusted for inflation, from 1979 to 2013.
This next chart shows the growth in wages with inflation factored in. The bottom 10 percent of wage earners in the US have actually seen a decrease in their wages versus the rise in inflation. Even middle wage earners, those in the 50th percentile have only seen modest growth in the actual purchasing power of their wages.
All of these factors have combined to create the enormous wealth inequality that we see in society today. Cutting the tax rate for the most wealthy resulted in more of the money in society going to the top. The growth in productivity and increase in inflation also helps to shift wealth to the top. This is especially true in relation to wage increases being mostly stagnant over the last 30 years or so.
All this money has gone to the top of our society, it has allowed the wealthy to invest that extra money in ways that make regular people’s lives harder. I will be exploring why this inequality is unhealthy and unstable for society in future blogs.
Tomorrow (Feb. 28) there is a call for a national consumer boycott to show displeasure with the alignment between the Trump Administration, billionaires such as Elon Musk, and large corporations. This is a great first step in pushing back on these forces.
But it is an initiative that needs to be sustained. And it needs to be much deeper and broader than a consumer boycott. We need a larger shift. We need to exit the system.
We can do that by using our purchasing power at local stores, cooperative businesses, and non-corporate stores as best we can. We can bank at credit unions instead of megabanks. We can establish mutual aid societies to help each other through difficult times. The more money we shift in these directions, the more these enterprises can flourish and diversify.
The impacts of buying local are much larger than just the economic benefits and independence it brings. It makes our communities more resilient in the face of catastrophe or pandemics. This is especially true when it comes to our food sector. We need to be gardening, supporting local farms, canning, and taking care of our neighbors like people did back in the day.
This helps to lessen the effects of having a centralized food market. In the case of a catastrophic event or pandemic when supply lines could possibly be severed, local food systems and economies will be extremely important. It is better to have them built now than in the middle or aftermath of a pandemic.
It’s important to remember, the most valuable thing about us isn’t our money, it’s our time and energy. Our communities are frayed, our social connections are frayed, and in general there is not a lot of trust in our society. Getting out and helping to build up your community is one way to re-establish the connection and trust that people used to have. We need to work with each other to build back up and heal our communities.
Sometimes the best resistance is simply walking away and building something better. This is one of those times.
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