The false American dream

Gustavo Rivero. The idea that all American newborns have the same opportunities to enjoy a good life is false. In fact, it is a popular opinion throughout the country. And it’s one of the reasons why the tax debates in the United States are so heated.

Richer parents can afford to send their children to the best schools and universities and can offer financial support for housing and other expenses. For these and many other reasons, where and from whom one is born are determining factors of the results of life. The University of Ottawa says that it is possible to predict 50% of the variation in the wages of children in the United States by observing the salaries of their parents a generation before. This compares with less than 20% in the case of relatively equitable countries such as Finland, Norway and Denmark. In the US, more than half of the children born to parents in the upper decile of income do not fall below the eighth decile, while only half of the descendants of parents in the lower decile rise beyond the third decile.

According to The Economist, two-thirds of the distribution of global income can be explained simply by looking at where people live. The World Bank data shows that the average monthly consumption of the richest 10% of Tanzania is $ 173; in the lowest decile of the United States, it is $ 226. The fact that there is no overlap in consumption between the deciles of the two countries is not because the Tanzanians have made bad life decisions, but because they live in a poor country. Being born in the United States is worth a lot because it means that you have won the birth lottery between countries.

However, that is not what most Americans believe. The Pew Research Center surveys suggest that 57% disagree with the idea that “success in life is largely determined by forces that are beyond our control.” This figure is considerably higher than the global average and compares with the 31% disagreement in Germany, for example.

At the University of Connecticut they observed the results of the surveys and found that rich people in the United States were more inclined to believe in meritocracy, while poor people emphasized the role of luck. The average net worth of a congressman is just over $ 1,000,000 vs. a national net worth of each American household of about $ 56,000.

According to the British weekly, there are simple political solutions that can reduce the inequality of opportunities at birth. One of them is taxation. At the University of North Carolina they observed the highest 1% revenue share in all rich countries from 1960 to 2012. They found that the increase in the maximum tax rate reduces the 1% share. The increase in taxes reduces inequality and greater equity is associated with a lower inheritance of inequalities. However, in my opinion, this should be done with filigree to avoid confiscation and capital flight.

In fact, in the OECD club, US tax revenues represent 26.4% of GDP, the fifth lowest. That compares with an OECD average of 34.3% and is higher than 40% in many countries with low inherited inequality, including Sweden and Denmark. The key is to reach the optimal level of inequality, since the opposite extreme is even more harmful.

Why does the richest 1% of Americans take 20% of national income, but the richest 1% of Danes only 6%? Why have rich Britons seen their share of national income doubled since 1980, while the share of the Dutch rich has not moved? I attach this interesting graphic from The Conversation: