The fact that the smallest shares of individuals hold claim to a disproportionately large share of wealth is not a new one. Since 1970 the gap between the upper and lower income brackets has continued to widen, while those in the middle-income category have seen a decline in their relative income as well. The richest are becoming richer and the poorest are becoming relatively poorer, and the margins are ever-widening. In a country considered to be the “Land of Opportunity” and the home of the “American Dream,” why is it that such a cycle continues to be perpetuated and exacerbated?
The Gini coefficient, an indicator of economic inequality based on household income distribution, has increased by about 14% from 1990 to 2021. Even though the median household income has increased from $60,370 to $70,784 in the same period, and the tech and finance industry have opened up a plethora of job opportunities, those on the lowest rungs of the ladder without sufficient human capital are unable to easily access these opportunities. This points to an overarching trend in wealth accumulation, wherein how much money your family has directly influences your ability to make more money.
In many cases, wealth is the main factor in deciding one’s access to opportunities such as education, investments, a healthy diet, stable and safe living conditions, access to employment and virtually every other aspect of participation in our economy. For those with less, many opportunities that should be easily accessible to all are instead a rarity. It seems almost paradoxical that a system of government founded on the principles of equality and freedom simultaneously perpetuates economic inequality that continuously disadvantages the less fortunate.
By extension, a declining share of national wealth among low-income families means fewer opportunities to change their economic status in future generations, which only increases the gap between rich and poor. The Great Gatsby Curve, a term coined by Alan Krueger, former Department of the Treasury’s assistant secretary for economic policy, describes the phenomenon in which future generations of low-income families are unable to become wealthier than their parents, especially in countries with higher income inequality. This contradicts trends of increasing wealth and wages across the nation — in a society better geared toward equality of opportunity, the wealth of one’s parents wouldn’t be as important. The reality is that richer families have far better access to retirement funds and greater returns on investments, and are thus far more prepared to build generational wealth. In a nation supposedly built on equality of opportunity, it becomes increasingly important to assess why this has happened at such an alarming rate over the past 25 years.
The most glaring factor contributing to this ever-widening gap is access to high-quality education. It has been statistically shown that the higher your level of education, the greater your income will be on average. Median income statistics demonstrate that regardless of sex, more years of education will almost always ensure greater income. Having some education is far better than none at all; however, having a high school diploma or not makes far less of a difference than having a college education or degree. This further demonstrates the importance of high-quality primary education to encourage and enable students, regardless of family background, to pursue a college education and escape the cycle of poverty.
However, for the almost 100,000 public schools in the United States, nearly half of their funding is determined by local property taxes, which generates greater educational inequality and, in turn, wealth inequality between impoverished and wealthy districts. The way in which school district lines are drawn also contributes to this problem. Predominantly white districts, which are often smaller and wealthier than districts with mainly communities of Color, receive $23 billion more in funding nationwide. Across the nation, school districts with more students of Color receive around $1,800 less in funding per student than predominantly white districts. On the income front, wealthier districts can afford to invest $1,000 more per student than low-income districts.
There has historically been pushback against funding directly impacting outcomes for students. In 2017 Betsy DeVos, then the Secretary of Education, said that “the notion that spending more money is going to bring about different results is ill-placed and ill-advised.” Even still, there is overwhelming evidence that greater funding greatly impacts the outcomes of students. A seven-year study in Texas found that an extra $1,000 per student resulted in decreased dropout rates, better test scores and greater graduation and college enrollment rates. Other studies across the country have discovered similar trends, especially that the increased funding has a far greater impact on low-income, minority districts that are the most underfunded in the first place. Another effect of these long-term budgetary increases was that gains continued to improve over time, and not return to their original state. Clearly, an increase in funding for low-income school districts is highly beneficial, and will allow more students access to a high-quality education.
It is clear that in order to ensure greater income equality and a wealthier society as whole, we must rethink how schools are funded in the United States. Rather than divvying up funds on an exclusively local level, with some federal aid we can maintain the same pool of funding via a more effective manner of reallocation. Instead of school funding relying solely on the wealth of that specific district, why not introduce property taxes on a statewide basis?
By pooling the funds of the entire state into one large pot and then sharing the funds equally with each individual district, we can make the school funding process more equitable and ensure that each district receives funding that doesn’t favor one population over another. Localities can introduce standards to which each district must be held to, including test scores, grades, class size and graduation rates, etc., and then allocate federal funds to correct remaining inequities. Each local district would be in communication with their state legislators in order to maintain transparency and ensure that the money is being used solely in ways that improve the quality of education for their students.
Such a system would greatly improve the outcomes of students in previously underserved communities, and maintain the levels of success already well-funded schools are enjoying. As the data show, over time this will ensure that all receive equal opportunity for achieving greater wealth in the future and escape rapidly worsening income inequality. Access to high-quality education will open doors for those who previously lacked the knowledge or skills to compete in today’s workforce and allow more to pursue work they are truly passionate about. Not only will this lessen wealth inequality over time, but also allow even greater potential for a highly productive and innovative society prepared for the challenges to come.
Maximillian Schenke is an Opinion Columnist and can be reached at maxsch@umich.edu.