The Impact of the Recent Downturn on the Wealth Distribution in America

The downturn in the economy that we are still trying to dig out of did not impact all Americans equally.  A recent article in the Washington Post titled “As Economy Recovers, the Richest Get Richer, Study Shows” looks at a the results of a recent Pew Research report titled “A Rise in Wealth for the Wealthy; Declines for the Lower 93%, An Uneven Recovery, 2009-2011” showing that not all Americans were impacted equally by the recent downturn.

During the first two years of the economic recovery the richest 7% of American Wealthhouseholds got richer as the remaining 93% saw their average net worth decline.  Part of the problem was that many middle class jobs were lost during the recession only to be replaced by low-income jobs – a fact documented in the Washington Post article, “How the Recession Turned Middle-Class Jobs into Low-Wage Jobs.”  In fact, the average net worth of the 111 million households in the less affluent 93% fell to roughly $134,000 from $140,000

What about the top 7%?  The top 7% of households ended up with 63% of the nation’s household wealth in 2011 – which was up from 56% only two years earlier.  Moreover, the top 7%, or the 8 million American households who make up wealthiest 7%, saw their average wealth rise from $2.5 million to an estimated $3.2 million.

One final way to view the wealth disparity in the United States is the fact that the average wealth of the top 7% of households was almost 24 times that of those in the less affluent group in 2011 – whereas at the start of the recovery in 2009, that ratio was less than 18 to 1.

In Personal Finance, Turning Money into Wealth, we really don’t discuss income equality, but it is out there – and it may well have an impact on the tax code in the future – particularly in the tax rates for the wealthy, estate planning, and investment taxes.

Class discussion:

1. Do you feel the government should do something to impact this disparity or do you feel that income redistribution should not be a role of the government?

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