Wealth vs. work - Page 2

The tech sector has created great wealth — and worse inequality. Is that San Francisco's future?

El Roto's 'Untitled (30 Cartoons)' is among the works on display at YBCA's 'Without Reality There Is No Utopia" exhibit

In 2010, white families earned about $2 for every $1 earned by black and Hispanic families, a ratio that has held steady for about 30 years. But an even more important and telling figure is the gap in wealth, which includes savings, investments, and home values minus total debts. Before the recession that began in 2008, white families had four times the wealth of black and Hispanic families. That ratio widened to 6-1 by 2010. The most recent figures show the average wealth of white families is $632,000, compared to $98,000 for black families and $110,000 for Hispanic families. The reasons range from inheritances to tax policies skewed in favor of the wealthy, such as mortgage deductions and low taxes on retirement savings and capital gains.

"The federal government is subsidizing asset building and it's going to high-income people," Caroline Ratcliffe, a senior fellow at Urban Institute who helped write the study, told the Bay Guardian.

She called that policy dangerously short-sighted because it causes social ills such as crime and poverty, as well as putting a damper on future economic growth, which in this country relies on consumer spending by a strong middle class.

Ratcliffe also helped produce an Urban Institute study that came out last month, "Lost Generations? Wealth Building among Young Americans," which showed how Generations X and Y — those under 40 years old — are in worse shape and have far fewer opportunities to build wealth than previous generations.

"Their average wealth in 2010 was 7 percent below that of those in their 20s and 30s in 1983," the study states. "Even before the Great Recession, young Americans were on a strikingly different trajectory. Now, stagnant wages, diminishing job opportunities, and lost home values may be merging to paint a vast different future for Gen X and Gen Y. Despite their relative youth, they may not be able to make up the lost ground."

The situation is even worse is supposedly prosperous California. A November 2011 study by the California Budget Project, "A Generation of Widening Inequality," found that "a disproportionate share of income gains in recent decades has accrued to the very top of the distribution, in spite of continued productivity gains."

A big reason for the disparity is policies that tax work at higher rates than investments, which make up a significant portion of wealthy people's income. The top 5 percent of California taxpayers made 54.5 percent of their incomes from work and 42 percent from investments (and 3.5 percent from retirement income), compared with the bottom 95 percent of Californians, who made 80.8 percent of their income from wages and 11.3 percent from retirement income.

Among the 50 states, California ranked seventh in income disparity, between Alabama and Texas. Among urban areas in the US, the Bay Area has the seventh highest income disparity in the country. Economists and historians say such inequities aren't sustainable, and they are bound to put pressure on the political system whose policies created them. As Ratcliffe concluded: "We need our federal leaders to focus more on these disparities."

Or, as San Francisco economist Peter Donohue put it, "We're moving toward a moment when the opportunity to restructure American politics is approaching. I'm content to be patient and watch things come apart this year."

And San Francisco — a rich city with glaring and growing economic inequities, where city policies continue to subsidize technology companies backed by wealthy investors even though unemployment is low and the cost of living is rising steeply — could be one of the places where things begin to come apart.