Summary  

The public has supported raising taxes on the ultrarich and corporations for years, but policymakers have not responded. Small increases in taxes on the rich that were instituted during times of Democratic control of Congress and the White House have been consistently swamped by larger tax cuts passed during times of Republican control. This was most recently reflected in the massive budget reconciliation bill pushed through Congress exclusively by Republicans and signed by President Trump. This bill extended the large tax cuts first passed by Trump in 2017 alongside huge new cuts in public spending. This one-step-forward, two-steps-back dynamic has led to large shortfalls of federal revenue relative to both existing and needed public spending.

Raising taxes on the ultrarich and corporations is necessary for both economic and political reasons. Economically, preserving and expanding needed social insurance and public investments will require more revenue. Politically, targeting the ultrarich and corporations as sources of the first tranche of this needed new revenue can restore faith in the broader public that policymakers can force the rich and powerful to make a fair contribution. Once the public has more faith in the overall fairness of the tax system, future debates about taxes can happen on much more constructive ground.

Policymakers should adopt the following measures:

• Tax wealth (or the income derived from wealth) at rates closer to those applied to labor earnings. One way to do this is to impose a wealth tax on the top 0.1% of wealthy households.
• Restore effective taxation of large wealth dynasties. One way to do this would be to convert the estate tax to a progressive inheritance tax.
• Impose a high-income surtax on millionaires.
• Raise the top marginal income tax rate back to pre-2017 levels.
• Close tax loopholes for the ultrarich and corporations.

Introduction

The debate over taxation in the U.S. is in an unhealthy state. The public is deeply distrustful of policymakers and doesn’t believe that they will ever put typical families’ interests over those of the rich and powerful. In tax policy debates, this means that people are often highly skeptical of any proposed tax increases, even when they are told it will affect only (or, at least, overwhelmingly) the very rich. People are also so hungry to see any benefit at all, no matter how small, that they are often willing to allow huge tax cuts for the ultrarich in tax cut packages if those packages include any benefit to them as well. The result has been a continued downward ratchet of tax rates across the income distribution.1 This is a terrible political dynamic for U.S. economic policy, given the pressing national needs for more revenue.

As countries get richer and older, the need for a larger public sector naturally grows.2 Yet the share of national income collected in taxes by the U.S. government has stagnated since the late 1970s. This has left both revenue and public spending in the United States at levels far below those of advanced country peers.3 This stifling of resources available for the public sector is not only inefficient but has led to frustration over its inability to perform basic functions. The political root of this suppression of resources for the public sector is a series of successful Republican pushes to lower tax rates for the richest households and corporations. This attempt to use tax policy to increase inequality has amplified other policy efforts that have increased inequality in pre-tax incomes, leading to suppressed growth in incomes and declining living standards for low- and middle-income households and a degraded public sector.4

In recent decades the dominant strategy for many on the center–left to combat the public’s tax skepticism is to pair tax increases with spending increases for programs that lawmakers hope will be popular enough to justify the taxes. This strategy has worked in the sense that some tax increases have been passed in the same legislation that paid for valuable expansions of income support, social insurance, and public investment programs in recent years. But this strategy has not stopped the damaging political dynamic leading to the sustained downward ratchet of tax revenue and the tax rates granted to the ultrarich and corporations.5

Part of the problem with a strategy of trying to attach tax increases to allegedly more popular spending increases is that it takes time for spending programs to become popular. The Affordable Care Act (ACA), for example, was not particularly popular in the year of its passage but has survived numerous efforts to dislodge it and has seemingly become more popular over time. Conversely, the expanded Child Tax Credit (CTC) that was in effect in 2021 and cut child poverty in half only lasted a single year, so there was little organic public pressure on Congress to ensure it continued.

In this report, we suggest another strategy for policymakers looking to build confidence in the broader public that tax policy can be made fairer: Target stand-alone tax increases unambiguously focused on ultrarich households and corporations as the first priority of fiscal policy. The revenue raised from this set of confidence-building measures can be explicitly aimed at closing the nation’s fiscal gap (the combination of tax increases or spending cuts needed to stabilize the ratio of public debt to national income).6 Once this gap has been closed with just highly progressive taxes, the public debate about the taxes needed to support valuable public investments and welfare state expansions should be on much more fruitful ground.

This approach takes seriously the work of scholars like Williamson (2017), who argue that the U.S. public is not rigidly “anti-tax.” Indeed, this public often views taxpaying as a civic responsibility and moral virtue. Yet they have become convinced that too many of their fellow citizens are not making a fair and adequate contribution. Part of this perception rests on underestimating the taxes paid by the poor and working people, but a good part of this perception also rests on the accurate impression that many rich households and corporations are not paying their fair share. Policy can change this latter perception, particularly if the policy is explicitly identified with ensuring that the rich and corporations—and only the rich and corporations—will see their taxes increase.

The rest of this report describes a number of tax policy changes that would raise revenue from the rich and corporations with extremely small (often zero) spillover into higher taxes for anybody else. It also provides rough revenue estimates of how much each could raise. It is not exhaustive, but it demonstrates that the nation’s current fiscal gap could certainly be closed with only taxes on the very rich. Making this policy agenda and target explicit could go a long way to restoring trust and improving the quality of the debate about taxes.

Targeting the ultrarich

The vast majority (often 100%) of the tax policy changes discussed below would only affect the taxes paid by the top 1% or above (those making well over $563,000 in adjusted gross income in 2024). Many of the taxes—and the vast majority of the revenue raised—will actually come from households earning well above this amount. We will be more specific about the incidence of each tax in the detailed descriptions below. The tax policy changes fall into two categories: increasing the tax rates the rich and ultrarich pay and closing the tax loopholes they disproportionately benefit from. We first present the tax rate changes, and we list them in declining order of progressivity.

Both the rate changes and the loophole closers disproportionately focus on income derived from wealth. By far the biggest reason why rich households’ tax contributions are smaller than many Americans think is appropriate has to do with rich households’ source of income. So much of these households’ income derives from wealth, and the U.S. federal tax system taxes income derived from wealth more lightly than income derived from work. If policymakers are unwilling to raise taxes on income derived from wealth, the tax system can never be made as fair as it needs to be.

Levying a wealth tax on the top 0.1% or above of wealthy households

The WhyNot Initiative (WNI) on behalf of Tax the Greedy Billionaires (TGB) has proposed a wealth tax of 5% on wealth over $50 million, with rates rising smoothly until they hit 10% at $250 million in wealth and then plateauing. With this much wealth, even a household making just a 1% return on their wealth holdings would receive an income that would put them in the top 1% of the income distribution. A more realistic rate of return (say, closer to 7%) would have them in the top 0.1% of income.

The $50 million threshold roughly hits at the top 0.1% of net worth among U.S. families, so this tax is, by construction, extremely progressive—only those universally acknowledged as extremely wealthy would pay a penny in additional tax. The WNI proposal also imposes a steep exit tax, should anybody subject to the tax attempt to renounce their U.S. citizenship to avoid paying it.

The Tax Policy Center (TPC) has estimated that the WNI wealth tax could raise $6.8 trillion in additional net revenue over the next decade, an average of $680 billion annually. In their estimate, the TPC has accounted for evasion attempts and the “externality” of reduced taxes likely to be collected on income flows stemming from wealth holdings. Despite accounting for these considerations, the $6.8 trillion in revenue over the next decade could completely close the nation’s current estimated fiscal gap.

A key consideration in the long-run sustainability of revenue collected through a wealth tax is how quickly the tax itself leads to a decline in wealth for those above the thresholds of the tax. If, for example, the tax rate itself exceeded the gross rate of return to wealth, wealth stocks above the thresholds set by the tax would begin shrinking, and there would be less wealth to tax over time. The Tax Policy Center’s estimate includes a simulation of this decumulation process, assuming an 8.5% rate of return.7 It finds only very slow rates of decumulation.

Other simulation results (like those in Saez and Zucman 2019b) find faster decumulation for wealth taxes as high as this, but even their findings would still support the significant revenue potential of a wealth tax targeted at sustainability. Whereas the WNI wealth tax raises roughly 2.2% of GDP over the next 10 years, the Saez and Zucman (2019a) results highlight that over half this much could essentially be raised in perpetuity.8

It is important to note that even if revenue raised from any given wealth tax came in lower than expected due to the decumulation of wealth, this decumulation is itself highly socially desirable. The wealth would not be extinguished. It would instead accumulate to other households throughout society. An analogy is carbon taxes targeted at lowering greenhouse gas emissions. If a carbon tax were implemented and the revenue it raised steadily fell over time, this would be a sign of success, as the primary virtue of such a tax is not the long-run revenue it can raise but the behavioral changes it can spur, such as switching to less carbon-intensive forms of energy generation and use.

The benefits from wealth decumulation could be profound. For one, much of the rise in wealth in recent decades has been the result of a zero-sum transfer of income claims away from workers and toward capital owners (Greenwald, Lettau, and Ludvigson 2025). To the degree that higher wealth taxes make these zero-sum transfers less desirable for privileged economic actors, the imperative to keep wages suppressed and profits higher will be sapped, leading to a broader distribution of the gains of economic growth.

Further, highly concentrated wealth leads naturally to highly concentrated political power, eroding the ability of typical families to have their voices heard in important political debates (Page, Bartels, and Seawright 2013). Studies show that popular support for democratic forms of government is weaker in more unequal societies, demonstrating that a greater concentration of wealth can lead to the erosion of democracy (Rau and Stokes 2024).

Converting the estate tax to a progressive inheritance tax

The estate tax in the United States currently only applies to estates of more than $11.4 million. At the end of 2025 it would have reverted to pre-2017 levels of roughly $7 million, but the Republican budget reconciliation bill passed in 2025 will raise it to a level more than twice as high starting in 2026—at $15 million. The 40% estate tax rate applies on values above these thresholds.

The estate tax threshold has been increased significantly since 2000, with changes in 2001, 2012, 2017, and 2025 all providing large increases. In 2000 the threshold for exemption was under $1 million, and the rate was 55%. If the 2000 threshold were simply updated for inflation, it would have been $1.3 million today, instead of $11.4 million. At this $1.3 million threshold and with a 55% rate, the estate tax would raise roughly $75 billion more in revenue this year than it is currently projected to.9 In short, our commitment to taxing wealthy estates and their heirs has eroded substantially in recent decades.

Batchelder (2020) proposes a new tax on inheritances that would replace the estate tax. Batchelder’s inheritance tax would not fall on the total value of the estate, but simply the portion of it inherited by individual heirs. Her proposal is to tax inheritances of various thresholds as ordinary income. Because the tax would be triggered by the lifetime level of gifts and inheritances, it cannot be avoided just by using estate planning to time these bequests and gifts. For a threshold of $1 million, the tax would raise roughly 0.35% of gross domestic product annually, or roughly $1 trillion over the next decade.

An inheritance tax is naturally more progressive than an estate tax. To see why, imagine an estate of $5 million that faced 2000-era estate tax rules. An estate tax would lower the value of the inheritance to all heirs by an amount proportional to the tax. Conversely, under an inheritance tax, the effective rate of the tax felt by heirs would be significantly different if the estate was spread among 10 heirs (each receiving $500,000 and, hence, not even being subject to the Batchelder inheritance tax that starts at $1 million) versus being spread among two heirs (each receiving $2.5 million and paying an inheritance tax). Fewer heirs for a given estate value imply a larger inheritance and, hence, a higher inheritance tax (if the inheritance exceeds the tax’s threshold).

Imposing a high-income surtax on millionaires

Probably the most straightforward way to tightly target a tax on a small slice of the richest taxpayers is to impose a high-income surtax. A surtax is simply an across-the-board levy on all types of income (ordinary income, business income, dividends, and capital gains) above a certain threshold. As such, there is zero possibility that lower-income taxpayers could inadvertently face any additional tax obligation because of it.

A version of such a high-income surtax was actually a key proposed financing source for early legislative versions of the Affordable Care Act. The bill that passed the House of Representatives included such a surtax.10 This surtax was replaced with other revenue sources during the reconciliation process between the House and Senate versions.

One proposal is to enact a 10% surtax on incomes over $1 million. This would affect well under 1% of households (closer to 0.5%). Using data from the Statistics of Income (SOI) of the Internal Revenue Service (IRS), we find that roughly $1.55 trillion in adjusted gross income sat over this $1 million threshold among U.S. households in 2019.11 A purely static estimate with no behavioral effects, hence, would argue that $155 billion annually (10% of this $1.55 trillion) could be raised from this surcharge. In tax scoring models (like that of the Tax Policy Center or the Joint Committee on Taxation), behavioral effects tend to reduce estimates roughly 25% below such static estimates. Applying such a discount would still suggest that the revenue potential of a high-income surtax with a $1 million threshold could be $1.5 trillion over the next decade.

Raising the top marginal income tax rate back to pre-TCJA levels

During the Clinton and Obama administrations, the top marginal tax rate on ordinary income was increased to 39.6%. During the George W. Bush and the first Donald Trump administrations, it was reduced and currently sits at 37%. This lower marginal top rate would have expired at the end of 2025, but the Republican budget reconciliation bill, passed by Congress and signed by Trump in July 2025, ensured that it would stay at 37%.

In 2025 the bracket that this top tax rate applies to will begin at $626,350 for single filers and joint filers. This is well under 1% of taxpayers. If the bracket for top tax rates was dropped to $400,000 and the rate was raised to 39.6%, the Tax Policy Center has estimated that this could raise roughly $360 billion over the next decade. Earlier in 2025, there were reports that Republicans in Congress were thinking about letting the top tax rate revert to the level it was at before the 2017 Tax Cuts and Jobs Act (TCJA). This was touted as members of Congress breaking with their party’s orthodoxy and actually taxing the rich. On the contrary, the new top marginal tax rate now applies to joint filers at an even lower level than pre-TCJA rates.

As can be seen in Table 1, pushing the top marginal rate on ordinary income to pre-TCJA levels is one of the weakest tools we have for raising revenue from the rich. The reason is simple. A large majority of the income of the rich is not ordinary income; it is income derived from capital and wealth, and, hence, only changing the tax rate on ordinary income leaves this dominant income form of the rich untouched.

Corporate tax rate increases

In 2017 the TCJA lowered the top rate in the corporate income tax from 35% to 21%, and the 2025 Republican budget reconciliation bill extended that lower 21% rate. The 35% statutory rate that existed pre-TCJA was far higher than the effective rate actually paid by corporations. Significant loopholes in the corporate tax code allowed even highly profitable companies to pay far less than the 35% statutory rate.

But at the same time the TCJA lowered the statutory rate, it did little to reduce loopholes—the gap between effective and statutory rates after the TCJA’s passage remains very large.12 Clausing and Sarin (2023) have estimated that each 1 percentage point increase in the top statutory tax rate faced by corporations raises over $15 billion in the first years of the 10-year budget window. Raising today’s 21% top rate back to the 35% rate that prevailed before the TCJA would, hence, raise roughly $2.6 trillion over the next decade.

The immediate legal incidence of corporate taxes falls on corporations, the legal entities responsible for paying the taxes. However, the economic incidence is subject to more debate. The current majority opinion of tax policy experts and official scorekeepers like the Joint Tax Committee (JTC) is that owners of corporations (who skew toward the very wealthy) bear most of the burden of corporate tax changes.13 But some small share of the corporate tax rate’s incidence is often assigned to workers’ wages, as there are some (speculative) reasons to think a higher corporate tax rate leads in the long run to lower wage income. The economic reasoning is that if the higher corporate tax rates lead to less economywide investment in tangible structures, equipment, and intellectual property, then this could slow economywide productivity growth. This slower productivity growth could, in turn, reduce wage growth for workers.

However, newer research highlights that there are good reasons to think that corporate tax rate increases have zero—or even positive—effects on private investment in structures, equipment, and intellectual property. Brun, Gonzalez, and Montecino (2025, forthcoming) argue that once one accounts for market power (either in product or labor markets) of corporations, corporate taxes fall, in part, on nonreproducible monopoly rents. To provide an example, a large share of Amazon’s profits is not just due to the size of the firm’s capital stock but its considerable monopoly power in many business segments. This market power allows them to charge higher prices than they could in competitive markets, and these excess prices represent a pure zero-sum transfer from consumers, not a normal return to investment.

Increasing taxes on these monopoly rents can reduce stock market valuations of firms and actually lower the hurdle rate for potential competitors assessing whether to make investments in productivity-enhancing capital. This can actually boost investment and productivity economywide, and if investment and productivity rise (or just do not fall) in response to corporate tax increases, this implies that none of the economic incidence of a corporate tax increase falls on anybody but the owners of corporations.

In short, despite some mild controversy, it seems very safe to assume that increases in the corporate income tax rate both are and would be perceived by the public as extremely progressive.

Closing tax loopholes that the ultrarich and corporations use

As noted above, it’s not just falling tax rates that have led to revenue stagnation in recent decades. There has also been an erosion of tax bases. Growing loopholes and increasingly aggressive tax evasion strategies have put more and more income out of the reach of revenue collectors. It goes almost without saying that the vast majority of revenue escaping through these loopholes and aggressive tax evasion strategies constitutes the income of the very rich and corporations.

These types of loopholes are unavailable to typical working families because their incomes are reported to the Internal Revenue Service. Typical working families rely on wage income, which is reported to the penny to the IRS, and families pay their legally obligated tax amount. Income forms earned by the ultrarich, however, often have very spotty IRS reporting requirements, and this aids in the evasion and reclassification of income flows to ensure the ultrarich are taxed at the lowest rates.14 Shoring up tax bases by closing loopholes and engaging in more robust enforcement are key priorities for ensuring the very rich pay a fair and substantial contribution to the nation’s revenue needs.

Closing loopholes that allow wealth gains and transfers between generations to escape taxation

The wealthy use a number of strategies to escape taxation of the income they generate and to allow assets to be transferred to their heirs. Below we discuss three such strategies and provide a score for a consolidated package of reforms aimed at stopping this class of tax strategies—$340 billion over the next decade.

Ending the step-up in basis upon death or transfer of assets

This is best explained with an example. Say that somebody bought shares of a corporation’s stock in the early 1980s for $1 per share. They held onto it for decades until it reached $501 per share. Since they never realized this capital gain by selling the stock, they were never taxed on their growing wealth. Now, say that they transferred these stock holdings to their children decades later. Because it is no longer the original buyer’s property, it would not be assessed as part of an estate subject to the estate tax. If their children subsequently sold the stock, current law would allow a step-up in basis, which means the capital gain they earned from selling the stock would only be taxed on the gain over and above the $501 per share price that prevailed when they received the stock, not the original $1 per share price.

So, if children sold their stock gift for $501 per share, they would owe zero tax. And for the family as a whole, the entire (enormous) capital gain that occurred when the share appreciated from $1 to $501 is never taxed. This allows huge amounts of wealth to be passed down through families without the dynasty’s ever paying appropriate taxes, either capital gains taxes or estate taxes.

An obvious solution to this problem is simply to not grant the step-up in basis when the asset is transferred. That is, when the children receive the stock in the example above, any subsequent sale should be taxed on any capital gain calculated from the $1 originally paid for the stock. In the case above, the children would have had to pay a capital gains tax on the full value between $1 and $501 if they had sold the stock for $501.

Besides raising money directly through larger capital gains values, ending the step-up in basis can also cut down on many tax engineering strategies that wealthy families undertake to avoid taxation. Estimates for the revenue that could be raised by enacting this change are quite varied, but they tend to sit between $15 billion and $60 billion in 2025.15 We estimate this would raise $190 billion over the next decade.

An alternative solution getting at the same problem would be to make the death of a wealth holder a realizable event. Essentially, for the purposes of taxation, it would be assumed that all assets were sold by a wealth holder upon their death, and the appropriate rate of capital gains taxation would then be collected.

Making borrowing a realizable event

A related reform would make the pledging of any asset as collateral against a loan a realizable event. In the example above, as the original holder of the stock held the shares and did not sell them over a long period of time, this raises an obvious question of how this family is financing their current consumption without liquidating any wealth. They could, of course, be earning labor income. But the very wealthy often finance current consumption by taking out loans and using the value of their wealth as collateral. So long as the interest rates on the loans are lower than the rate of return on the wealth being pledged as collateral, they can enjoy high and rising consumption and still see considerable wealth appreciation. This is a particularly useful strategy during periods of low interest rates (like most of the past 25 years) and for owners of newer corporations that are growing rapidly (think Jeff Bezos and Amazon during the 2000s). This use of debt as a strategy of avoiding capital gains realization has often been called the “Buy, Borrow, Die” strategy.

An obvious reform to stop this would be to force wealth holders to treat pledging an asset as collateral as a realization event for this asset. When the wealth holder goes to financiers to get loans and pledges their shares as collateral, the wealth holder would pay a capital gains tax on the difference in the value of the stock between when they originally bought it and the value the day it is pledged for collateral. The amount of revenue this would raise would be small in the grand scheme of the federal budget, roughly $60 billion over the next decade. But it would provide one more block to a common tax evasion strategy for the ultrarich, and this could show up in more revenue collected through other taxes.

Closing loopholes that erode estate or inheritance tax bases

Hemel and Lord (2021) identify estate planning mechanisms that reduce the base of the current estates taxes, including the abuse of grantor retained annuity trusts (GRATs) and excessively preferential tax treatment of transfers within family-controlled entities. Under current law, wealthy individuals establishing a trust for their descendants may calculate the taxable gift amount of the trust by subtracting the value of any qualified interest. This qualified interest includes any term annuity retained by the grantor of the trust. The annuity is based on market interest rates prevailing when the trust was established. When interest rates are low, this becomes an extremely valuable deduction.

Hemel and Lord (2021) give the example of a grantor establishing a $100 billion trust but retaining a two-year annuity payment of $50.9 million based on the 1.2% interest rate prevailing in 2021. This taxpayer would be able to subtract this annuity from their taxable gift calculation, effectively paying no gift tax. If the assets in the trust grew faster than 1.2%, then the trust would have assets left over after two years, and these could be passed to the beneficiaries free of any transfer tax (as these assets came from the trust, not the original grantor). If assets in the trust grew more slowly than this amount, then the trust would be unable to make its full final annuity payment and would be declared a failed trust and would trigger no estate or gift tax consequences. In this case, the original grantor could simply try again to construct a short-term irrevocable trust that would succeed in transferring income to heirs without triggering a gift tax.

Hemel and Lord (2021) recommend repealing the law that allows for this deduction of qualified interest from gift or transfer taxes applying to GRATs. They also argue for reducing the preferential treatment of transfers within family-controlled entities. The full package of reforms to estate planning that they recommend would raise $90 billion over the next decade.

Closing the loophole from ambiguity between self-employment and net investment income

As part of the Affordable Care Act, a 3.8% tax was assessed on income above $200,000 (for single filers and $250,000 for joint filers). If this income is earned as wages or self-employment income, this tax is paid through the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA) taxes. If the income is received as a dividend or interest payment or royalty or other form of investment income, the tax is paid as a Net Investment Income Tax (NIIT). The clear intent is for income of all forms to be assessed this tax.

Somehow, however, some business owners (mostly those owning limited partnerships and S corporations—corporations with a limited number of shareholders who are required to pass through all profits immediately to owners) have managed to classify their income as not subject to FICA, SECA, or the NIIT.16 A number of policy options could close this unintended gap and raise nontrivial amounts of revenue—roughly $25 billion in 2025. Importantly, the revenue collected by this loophole closing would go directly to the Medicare trust fund.

International corporate tax reform

Before the TCJA, the biggest loophole by far in the corporate income tax code was U.S. corporations’ ability to defer taxes paid on profits earned outside the United States. In theory, once these profits were repatriated, taxes would be levied on them. However, financial engineering meant that there was little need to repatriate these profits for reasons of undertaking investment or stock buybacks or anything else corporations wanted to do.17 Further, corporations routinely lobbied for repatriation holidays, periods of time when they were allowed to repatriate profits at a reduced rate. One such holiday was passed by Congress and signed into law by George W. Bush in 2004.

Between 2004 and 2017, pressure for another such holiday ramped up as more and more firms deferred corporate taxes by holding profits offshore. The TCJA not only provided such a holiday for past profits kept offshore, it also made profits booked overseas mostly exempt from U.S. corporate taxes going forward. In essence, the TCJA turned deferral into an exemption.

This TCJA exemption of foreign-booked profits was subject to small bits of tax base protection. But they have been largely ineffective. The 2025 budget reconciliation bill would further exacerbate these problems, reducing taxes on foreign income even more.

Clausing and Sarin (2023) recommend a suite of corporate reforms that aims to level the playing field between firms booking profits in the United States versus overseas. Key among them would be to reform the Global Intangible Low-Taxed Income (GILTI) tax rate, a rate introduced in the TCJA, to ensure that financial engineering would not allow large amounts of corporate income earned by U.S.-based multinationals to appear as if they were earned in tax havens.18

The GILTI is essentially a global minimum tax rate for U.S. multinationals. But the rate (10.5% in 2024 and 12.6% in 2025) is far too low to effectively stop this kind of tax haven-shopping for corporations, much lower than the 15% minimum rate negotiated by the OECD and agreed to by the Biden administration in 2022.

In addition, multinationals are currently allowed to blend all their foreign tax obligations globally and take credits for foreign corporate income taxes paid. So, taxes paid on a company’s actual manufacturing plant in, say, Canada, can count toward the GILTI contribution of a multinational, even if they then used financial engineering to shift most of their paper profits to tax havens like the Cayman Islands.

Raising the GILTI rate and applying it on a country-by-country basis would go a long way to preserving the base of the U.S. corporate income tax in the face of tax havens. The Clausing and Sarin (2023) suite of reforms would raise $42 billion in 2025.

Building up IRS enforcement capabilities and mandates

In 2022, the IRS estimated that the tax gap (the dollar value of taxes legally owed but not paid in that year) exceeded $600 billion. The richest households account for the large majority of this gap. The IRS in recent decades has lacked both the resources and the political support to properly enforce the nation’s tax laws and collect the revenue the richest households owe the country.

Due to this lack of resources and mandates, the IRS instead often took the perverse approach of leveraging enforcement against easy cases—easy both in terms of not taking much capacity and of not generating intense congressional backlash.19 In practice, this meant intensively auditing recipients of refundable tax credits to look for improper payments. Tax credits are refundable when the amount of a credit (say, the Child Tax Credit) is larger than the taxpayer’s entire income tax liability. In this case, the credit does not just reduce income tax liability; it will also result in an outright payment (hence, refundable) to the taxpayer claiming it. Recipients of these refundable tax credits are, by definition, low-income taxpayers—those with low income tax liability. Besides making the lives of these low-income households more anxious, these audits also just failed to generate much revenue—again, because the group being audited was generally low income and didn’t owe significant taxes in the first place.

The Biden administration included significant new money to boost IRS enforcement capacity as part of the 2022 Inflation Reduction Act (IRA). This extra enforcement capacity was paired with new mandates to reduce the tax gap by increasing enforcement efforts on rich taxpayers.

However, the IRA additions to IRS resources were already being chiseled away before the 2024 presidential election. The Trump administration clearly has no interest in whether or not the IRS consistently enforces revenue collection from the rich. The budget reconciliation bill that Republicans passed through Congress in July rolled back the expanded funding for IRS enforcement. Trump’s proposed fiscal year 2026 budget for IRS funding would chip away at that even further. 

The IRS has also not been immune to the Trump administration’s attempt to make life miserable for federal employees. The agency has lost a quarter of its workforce since 2025 to layoffs, the deferred resignation offer pushed by Elon Musk’s so-called Department of Government Efficiency, early retirements, and other separations (TIGTA 2025).

The sharp turn away from the Biden administration’s support of the IRS represents a missed opportunity. While it would be near impossible to fully close the tax gap, Sarin and Summers (2019) estimate that some modest and doable steps could reliably collect significantly over $100 billion per year over the next decade from increased enforcement efforts.

How much could a campaign of confidence-building measures to tax the ultrarich raise?

These measures to enact a series of tax reforms laser-targeted at only the rich could raise significant revenue. One obvious benchmark suggests itself: the current fiscal gap. The fiscal gap is how much (as a share of GDP) taxes would need to be raised or spending would need to be cut to stabilize the ratio of public debt to GDP. Today this gap stands at roughly 2.2%.

Table 1 gives a rough score for each of the provisions mentioned above. It then conservatively estimates the combined revenue-raising potential of this package. It assumes that the whole policy package is equal to 70% of the sum of its parts. This would help account for some fiscal “externalities” (i.e., taxing wealth means wealth grows more slowly over time and, hence, reduces tax collections on income earned from wealth going forward). It also would help account for some potentially duplicative effects that could reduce some revenue collected by the combination of these reforms. For example, if the step-up in basis were eliminated, the incentive for rich households to finance consumption with loans would be reduced, so the revenue generated by treating the pledging of collateral as a realizable event would likely be reduced.

Table 1

This combination of confidence-building measures to tax the rich would unambiguously be able to close the nation’s current fiscal gap. The sum of the parts of this agenda would raise roughly 4% of GDP over the long run, and even if the sharp 30% discount on the sum of these parts was applied, it is still just under 3% of GDP. Telling the American public that this package of tax increases on the ultrarich had put the nation on a fully sustainable long-run trajectory while still leaving enough money to fund something as large as universal pre-K for 3- and 4-year-olds or a radical increase in more generous coverage in the nation’s unemployment insurance system could be seismic for changing the tax debate in the United States.

For those like us who advocate for even larger expansions of the U.S. system of income support, social insurance, and public investment, the future political debate over how to finance them would be on much more favorable ground with the public’s support. The conditions of the debate would change if the public could shake the (too often true) impression that the U.S. government is failing to ask the ultrarich and corporations to do their part to contribute to the nation’s fiscal needs.

Conclusion

Obviously, this program of laser-targeting tax increases on the ultrarich is not the policy of the current Trump administration or the Republican majority in Congress. They have already spent the first half of 2025 forcing through a monster of a reconciliation bill, which extended the expiring provisions of the TCJA, provisions that provide disproportionate benefits to the very rich. The reconciliation bill represents a shocking upward redistribution of income from the very poor to the very rich, paying for trillions of dollars in tax cuts that primarily benefit the wealthy by stripping health care and food assistance from millions of Americans. 

But as damaging as extending these expiring provisions will be to tax fairness and economic outcomes, they might be even more damaging to the public’s confidence that tax policy can ever be reoriented to ensure that the ultrarich and corporations pay their fair share. Instead, the debate over the expiring provisions will draw attention to two facts. First, the large majority of U.S. households will see a tax cut (relative to current law), but these cuts will be much larger for the rich. For example, the bottom 60% of households will see a tax cut of just over $1 per day, while the top 1% will see a cut of $165 per day, and the top 0.1% will see a whopping $860 per day. Second, these regressive tax cuts are bundled with spending cuts that will sharply reduce incomes for the people in the bottom half of the income distribution, leaving them net losers overall.

This combination of facts will continue to feed perceptions that the only way typical households can get something—anything—out of tax policy debates is if they settle for crumbs from the feast enjoyed by the richest. And even these crumbs will be taken back in the form of cuts elsewhere.

It’s time to reverse these perceptions. If policymakers engage in a confidence-building set of measures to raise significant revenue only from the ultrarich, the public’s stance toward tax policy can be changed from being anti-tax to being willing to have debates about the pros and cons of public sector expansions, content in the knowledge that the very rich will neither escape their obligations nor claim the lion’s share of benefits yet again.

Notes

1. Obviously not all of this downward ratchet is bad. The steep decline in tax rates for the poorest families, driven by expanding Earned Income and Child Tax credits, has been a very welcome policy development in recent decades.

2. The strong relationship between the level of gross domestic product (GDP) per capita and the share of the public sector in a nation’s economy is recognized enough to have been named: Wagner’s Law.

3. On the relative smallness of the U.S. fiscal state (both spending and taxation as shares of GDP), see EPI 2025.

4. Bivens and Mishel 2021 note the number of intentional policy changes outside the sphere of taxation that have driven much of the growth in pre-tax inequality.

5. For example, both the Affordable Care Act (ACA) and the Inflation Reduction Act (IRA) paid for the additional spending on public investments and income support programs they called for with new taxes. That said, because Republican-driven tax cuts were passed in the interim, the upshot has been mostly larger budget deficits over time.

6. See Kogan and Vela 2024 for an explanation and estimation of the U.S. fiscal gap in 2024.

7. The rate of return assumption matters a lot for how durable revenue increases from a wealth tax will be over time. A rate of 8.5% is on the high end of many projections for rates of return to wealth in coming decades.

8. Specifically, they note about wealth taxes: “Set the rates medium (2%–3%) and you get revenue for a long time and deconcentration eventually” (Saez and Zucman 2019b). When they estimate the potential revenue of Elizabeth Warren’s 2% wealth tax on estates over $50 million (with an additional tax of 1% on wealth over a billion), they find it raises roughly 1% of GDP per year (Saez and Zucman 2019a).

9. This estimate comes from the Penn Wharton Budget Model 2022.

10. For a description of that surtax and the competing revenue options debated at the time, see Bivens and Gould 2009.

11. This number has been inflated to 2024 dollars.

12. See Gardner et al. 2024 on the effective corporate income tax rate before and after the TCJA.

13. For example, the Distributional Financial Accounts of the Federal Reserve Board (2025) estimate that the wealthiest 1% of households own over 30% of corporate equities, while the wealthiest 10% own just under 90%.

14. See Sarin and Summers 2019 for how much of the tax gap is driven by poor reporting requirements on income flows disproportionately earned by the rich—mostly various forms of noncorporate business income.

15. This range of estimates comes from the Joint Committee on Taxation (JCT) 2023, and Lautz and Hernandez 2024. Part of this variation is about how much extra revenue is allocated to the strict step-up in basis termination versus the extra revenue that is collected through the normal capital gains tax as a result of closing this loophole.

16. The details of this gap can be found in Office of Tax Analysis 2016. The upshot is that some business owners have managed to deny being active managers of their firms and have, hence, avoided being taxed on labor earnings, but they have somehow also managed to deny being passive owners of their firms, hence avoiding the NIIT as well. It is bizarre that this not-active but not-passive category of owner has been allowed to be given legal status, but that does seem to be the state of the law currently, until Congress acts.

17. See Bivens 2016 on how profits held abroad by deferring taxation were not a constraint on any meaningful economic activity.

18. I say “appear” because the ability and even the specific strategies corporations have to make profits clearly earned by sales in the United States appear on paper to have been earned in tax havens are all extremely well documented by now, including in Zucman 2015.

19. See Elzayn et al. 2023 for evidence that the audit patterns of the IRS in the mid-2010s were driven by these considerations.

References

Batchelder, Lily. 2020. Leveling the Playing Field Between Inherited Income and Income from Work Through an Inheritance Tax. The Hamilton Project, The Brookings Institution, January 28, 2020.

Bivens, Josh. 2016. “Freeing Corporate Profits from Their Fair Share of Taxes Is Not the Deal America Needs.” Working Economics Blog (Economic Policy Institute), September 27, 2016.

Bivens, Josh, and Elise Gould. 2009. House Health Care Bill Is Right on the Money: Taxing High Incomes Is Better Than Taxing High Premiums. Economic Policy Institute, December 2009.

Bivens, Josh, and Lawrence Mishel. 2021. Identifying the Policy Levers Generating Wage Suppression and Wage Inequality. Economic Policy Institute, May 2021.

Brun, Lidía, Ignacio González, and Juan Antonio Montecino. 2025. “Corporate Taxation and Market Power Wealth.” Working Paper, Institute for Macroeconomic Policy Analysis (IMPA), February 12, 2025.

Clausing, Kimberly A., and Natasha Sarin. 2023. The Coming Fiscal Cliff: A Blueprint for Tax Reform in 2025. The Hamilton Project, The Brookings Institution, September 2023.

Economic Policy Institute (EPI). 2025. U.S. Tax and Spending Explorer.

Elazyn, Hadi, Evelyn Smith, Thomas Hertz, Arun Ramesh, Robin Fisher, Daniel E. Ho, and Jacob Goldin. 2023. “Measuring and Mitigating Racial Disparities in Tax Audits.” Stanford Institute for Economic Policy Research (SIEPR) Working Paper, January 2023.

Federal Reserve Board. 2025. Distributional Financial Accounts of the United States. Accessed April 2025.

Gardner, Matthew, Michael Ettlinger, Steve Wamhoff, and Spandan Marasini. 2024. Corporate Taxes Before and After the Trump Tax Law. Institute on Taxation and Economic Policy (ITEP), May 2, 2024.

Greenwald, Daniel L., Martin Lettau, and Sydney C. Ludvigson. 2025. “How the Wealth Was Won: Factor Shares as Market Fundamentals.” Journal of Political Economy 133, no. 4 (April): 1083–1132.

Hemel, Daniel, and Robert Lord. 2021. “Closing Gaps in the Estate and Gift Tax Base.” Working Paper, Coase-Sandor Working Paper Series in Law and Economics. University of Chicago Law School, August 13, 2021.

Joint Committee on Taxation (JCT). 2023. Estimates of Federal Tax Expenditures for Fiscal Years 2023–2027. JCX-59-23, December 7, 2023.

Kogan, Bobby, and Jessica Vela. 2024. What Would It Take to Stabilize the Debt-to-GDP Ratio? Center for American Progress, June 5, 2024.

Lautz, Andrew, and Fredrick Hernandez. 2024. Paying the 2025 Tax Bill: Step Up in Basis and Securities-Backed Lines of Credit. Bipartisan Policy Center, December 12, 2024.

Office of Tax Analysis. 2016. Gaps Between the Net Investment Income Tax Base and the Employment Tax Base, April 14, 2016.

Page, Benjamin I., Larry M. Bartels, and Jason Seawright. 2013. “Democracy and the Policy Preferences of Wealthy Americans.” Perspectives on Politics 11, no. 1 (March): 51–73.

Penn Wharton Budget Model. 2022. Decomposing the Decline in Estate Tax Liability Since 2000, University of Pennsylvania, July 28, 2022.

Rau, Eli G., and Susan Stokes. 2024. “Income Inequality and the Erosion of Democracy in the Twenty-First Century.” PNAS 122, no. 1, December 30, 2024.

Saez, Emmanuel, and Gabriel Zucman. 2019a. “Policy Memo on Wealth Taxes,” September 22, 2019.

Saez, Emmanuel, and Gabriel Zucman. 2019b. Progressive Wealth Taxation. Brookings Papers on Economic Activity, Fall 2019.

Sarin, Natasha, and Lawrence H. Summers. 2019. “Shrinking the Tax Gap: Approaches and Revenue Potential.” National Bureau of Economic Research (NBER) Working Paper no. 26475, November 2019.

Tax Policy Center (TPC). 2025. Revenue Estimate of Wealth Tax Proposal from Why Not Initiative.

Treasury Inspector General for Tax Administration (TIGTA). 2025. Snapshot Report: IRS Workforce Reductions as of May 2025. Report Number 2025-IE-R027. July 18, 2025.

Williamson, Vanessa S. 2017. Read My Lips: Why Americans Are Proud to Pay Taxes. Princeton, N.J.: Princeton Univ. Press, March 2017.

Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens. Translated by Teresa Lavender Fagan. Foreword by Thomas Piketty. Univ. of Chicago Press.

This interactive chartbook provides a statistical snapshot of race and ethnicity in the United States, depicting racial/ethnic disparities observed through

• Population demographics
• Civic engagement
• Labor market outcomes
• Income, poverty, and wealth
• Health

The chartbook also highlights some notable intersections of gender with race and ethnicity, including educational attainment, labor force participation, life expectancy, and maternal mortality. The findings are bracing, as they show how much more work we need to do to address longstanding and persistent racial inequities.

Most charts include data for five racial/ethnic groups in each of the charts—white, Black, Hispanic, Asian American and Pacific Islander (AAPI), and American Indian and Alaska Native (AIAN). In the charts and text, “Americans” refers to all U.S. residents, regardless of citizenship status.

Researchers seeking disaggregated data and statistics for AAPI and AIAN groups are encouraged to look at sources cited in the companion essays in the Anti-Racist Economic Research and Policy Guide: AAPI Data and the Center for Indian Country Development at the Federal Reserve Bank of Minneapolis.

As our efforts illustrate, collecting and maintaining data sources that are representative of the entire U.S. population is an essential first step toward overcoming the invisibility, neglect, and lack of understanding experienced by many communities of color. Future work on this project will involve identifying comparable data from alternative sources that fill in as much of the missing information in the chartbook as possible.

In this interactive chartbook, additional notes and source information can be accessed by clicking on the ellipses ( … ) in the notes and sources lines under the charts.

Population demographics

The U.S. has become more racially and ethnically diverse over the last two decades: Share of U.S. population by race and ethnicity, 2000, 2010, and 2020

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Each decennial Census since 2000 has revealed a more racially and ethnically diverse U.S. population. While the share of people who identify as Black (about 12%) or American Indian and Alaskan Native (0.7%) has remained constant, the non-Hispanic white share of the population has declined from 69.1% in 2000 to 57.8% in 2020. On the other hand, a growing share of U.S. residents identify as Hispanic (increasing from 12.5% in 2000 to 18.7% in 2020) or Asian American and Pacific Islander (increasing from 3.7% in 2000 to 6.1% in 2020). These changing population demographics reflect different trends in birth, mortality, and immigration rates across groups. Since 2000, there have also been significant changes in how people identify racially. Notably, a growing share of people identify as being of two or more races (this would include people who, for example, identify as Black and AAPI, but would not include people who identify as Black and Hispanic, as they are identifying Black alone as their race and Hispanic as their ethnicity). Also, a growing but still small share of people identify as being of a race other than those explicitly defined by the Office of Management and Budget (OMB).

As Trevon Logan notes in his essay, it is the OMB that issues regulations regarding the classifications of race and ethnicity by federal agencies, including the U.S. Census Bureau, which conducts the major household and business surveys used by researchers. There are six permitted race categories and two ethnicity classifications, Hispanic and non-Hispanic. As such, everyone is a member of both a race and ethnicity. For more on the current classifications, see Logan’s essay.

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While U.S. residents are overwhelmingly citizens, Asian American/Pacific Islander and Hispanic citizens are more likely to be first-generation immigrants: Share of U.S. population by race/ethnicity and nativity, 2024

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Across all racial and ethnic groups, an overwhelming majority of people in the United States are U.S. citizens, according to data from the Current Population Survey. However, nativity shares vary across racial groups. White persons (95.9%), American Indian and Alaskan Native (AIAN) persons (81.3%), and Black persons (88.6%) are most likely to have been born citizens (born in the United States or to United States citizens abroad), compared with over half of the Hispanic population (66.7%) and more than one-third (37.8%) of the Asian American and Pacific Islander (AAPI) population.

Immigration status also varies widely. AAPI residents are most likely to be immigrants: more than one-third (38.3%) were not born U.S. citizens but became U.S. citizens (i.e., are naturalized U.S. citizens), while another 23.9% are not citizens. Hispanic residents are next most likely to be immigrants: 12.6% are naturalized citizens and 20.7% are not citizens. These statistics highlight only a fraction of the diversity represented within and across different racial and ethnic groups. As several essays in the Advancing Anti-Racist Economic Research and Policy guide explain, analyses that use categories or group descriptions that are too broadly defined can lead to inaccurate conclusions.

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The uneven geographic distribution of racial and ethnic populations highlights the influence of state and local policy on racial inequality: Share of state population by race and ethnicity, 2020

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The U.S. Census Bureau projects that Black, Hispanic, AAPI, and other people who do not identify as white will collectively account for over half of the population of the United States by 2044. In California, Hawaii, Maryland, Nevada, New Mexico, Texas, and the District of Columbia, the white population is already in the minority, and in Arizona, Florida, Georgia, New Jersey, and New York, white persons make up just over half of the population. This interactive map shows areas of population density for each race or ethnic group (click on a race or ethnic group) along with the racial and ethnic distribution of each state’s population (click on a state). It shows that Southern states and the District of Columbia have the largest shares of residents who are Black, with the highest shares in the District of Columbia (40.9%), Mississippi (36.4%), and Louisiana (31.2%). Southwestern and Western states are home to a large percentage of Latinos, with the highest shares in New Mexico (47.7%), Texas (39.3%), and California (39.4%). AAPI residents, including Native Hawaiians, predictably account for nearly half (46.8%) of the population of Hawaii but are also a significant share of the population in California (15.5%) as well as New Jersey and Washington state (10.2% each). Also, as the group’s name would indicate, American Indian and Alaska Native residents account for the highest share of the population in Alaska (14.8%), followed by New Mexico (8.9%), South Dakota (8.4%), and Oklahoma (7.9%). White Americans account for the largest majority of the population in several Northeastern states (90.2% in Maine, 89.1% in Vermont, and 87.2% in New Hampshire) and West Virginia (89.1%).

The patterns illustrated in the map trace each group’s unique history of settlement, immigration, and migration in this country. But they also help to make a point about the important role that state and local policies play in either improving or worsening racial disparities in the United States. As just one example, EPI research shows that Southern states, which have a high density of Black residents, are more likely than states in other regions to use preemption laws to stop local governments from setting strong labor standards, such as raising the minimum wage and guaranteeing paid sick leave.

For more on preemption laws in the South, see Hunter Blair et al., Preempting Progress: State Interference in Local Policymaking Prevents People of Color, Women, and Low-Income Workers from Making Ends Meet in the South, Economic Policy Institute, September 2020.

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Current population demographics by race/ethnicity and age support projections that people of color will become the collective majority by 2050: Share of U.S. population within given age ranges, by race and ethnicity, 2024

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The changing racial and ethnic makeup of the U.S. population is foretold in the age distribution of different racial and ethnic groups. In 2024, over a quarter (28.9%) of people who identified as Hispanic were under the age of 18, as were about a quarter of those who identified as Black (24.5%), American Indian and Alaska Native (AIAN) (27.9%) and a fifth within those who identified as Asian American and Pacific Islander (19.9%). A smaller share of the white population (17.8%) belonged to this younger age cohort while over a third (36.9%) of white residents were near or at retirement age (age 55 or older)—a much larger share than for other racial and ethnic groups. As the current population ages, the older population will remain predominantly non-Hispanic white while Black, Hispanic, AAPI, and AIAN persons will be a growing share of the younger population. This racial and ethnic generation gap will require balancing the interests of a younger, less wealthy, more racially and ethnically diverse population with those of an older, wealthier, predominantly white population. However, these generations are linked in important ways. Older workers and retirees have a stake in worker, economic, and racial justice for those younger workers who in the years ahead will be a growing share of workers driving the national economy and providing many of the services the aging population relies on. Census population projections from 2022 (the latest available) indicate that in 2050, non-Hispanic white persons will account for less than half (48.4%) of the U.S. population (see U.S. Census Bureau, 2023 National Population Projections Tables, Table 4).

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Men’s educational attainment is highly stratified by race and ethnicity, with American Indian and Alaska Native, Hispanic, and Black men most likely to be “working class”: Share of men aged 25 and older within given level of educational attainment, by race and ethnicity, 2024

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The term working class has been used to describe working-age adults who have less than a bachelor’s degree. Based on their high shares without a bachelor’s degree or more education, American Indian and Alaska Native (AIAN) (85.3%), Hispanic (80.9%), and Black (76.5%) men are more likely to be considered working class (under this definition) than are white (60.3%) or Asian American and Pacific Islander (AAPI) (40.7%) men. Even among the groups of men most likely to be considered working class, there is still a wide range of educational attainment that includes everything from less than a high school diploma to some college. The some college category includes attendance at a four-year or two-year institution, but no degree; it also includes completion of a two-year associate or technical degree. The groups with the highest shares of people with less than a high school education are Hispanic men (27.6%) and AIAN men (23.5%) and 57.7% of Hispanic men and over half of AIAN men (58.2%) have no education beyond high school. While about half (47.0%) of Black men also have no education beyond high school, Black men are more likely than either Hispanic or AIAN men to have a bachelor’s or advanced degree, but still much less likely to have that level of education than either white or AAPI men. AAPI men lead all other racial groups in the share (59.2%) who have a bachelor’s or advanced degree. These patterns of educational attainment are shaped by multiple factors, including differences in immigration policies applied to Asian versus Latin American countries, as well as the legacy of racial discrimination and oppression that severely limited educational opportunities for generations of Black and Native Americans.

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Most women have more than a high school education, but Latinas and AIAN women lag behind other groups in attaining higher education: Share of women aged 25 and older within given level of educational attainment, by race and ethnicity, 2024

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In 2024, across most racial and ethnic groups, at least half of women aged 25 or older had some education beyond a high school diploma. Latinas were the exception—only 49.1% had some level of education beyond high school and 24.2% had less than a high school education, a much higher percentage than any other group of women (1.2 to nearly 5 times as much). Those women least likely to have a bachelor’s or advanced degree were American Indian and Alaskan Native (AIAN) women (19.7%) and Latinas (23.9%). Asian American and Pacific Islander (AAPI) and white women had the highest levels of educational attainment with 56.9% of AAPI women and 41.8% of white women having at least a bachelor’s degree, followed by 29.9% of Black women. As with men, these patterns of educational attainment are shaped by multiple factors, including differences in immigration policies applied to Asian versus Latin American countries, as well as the legacy of racial discrimination and oppression that severely limited educational opportunities for generations of Black and Native Americans. But compared with male educational attainment by race and ethnicity women tend to have higher levels of educational attainment (see Chart 5).

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While the Black and AIAN imprisonment rate has decreased, Black and AIAN people are still five times as likely as white people to be imprisoned: Imprisonment rates per 100,000 U.S. residents by race and ethnicity, 2012–2022

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In response to the demand for criminal justice reform and a shift away from the “tough on crime” politics of the 1980s and 1990s, imprisonment rates for Black, American Indian and Alaska Native (AIAN), Hispanic people have fallen over the last decade. But Black, AIAN, and Hispanic people are still much more likely to be incarcerated than white people, whose imprisonment rate has stagnated over the past decade. Over 1,000 out of every 100,000 U.S. residents who are Black or American Indian and Alaska Native (AIAN) were imprisoned in 2023, followed by 603 out of 100,000 Latino U.S. residents, 229 out of 100,000 white U.S. residents, and 88 out of 100,000 Asian American and Pacific Islander U.S. residents. Thus, the approximately 1.8 million people held in U.S. prisons at the end of 2022 —an often-forgotten segment of the U.S. population—are disproportionately Black, AIAN, Hispanic, and other people of color. 

Data on the size of the overall incarcerated population come from the “Correctional Populations in the United States, 2022—Statistical Tables” published by the U.S. Department of Justice in May 2024. 

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Black and AIAN men have an exceptionally high imprisonment rate: Imprisonment rates per 100,000 U.S residents, by race/ethnicity and gender, 2022

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This chart makes two facts very clear: That imprisonment in the United States is not only a gendered issue—with men being much more likely to be imprisoned—but also an issue of racialized gender, with Black and American Indian and Alaska Native (AIAN) men being far and away the most highly imprisoned group. Among women, AIAN residents had the highest imprisonment rate (173 per 100,000), followed by Black residents who had an imprisonment rate (64 per 100,000) in 2022. AIAN women were almost three times as likely to be imprisoned as Black women, around four times as likely to be imprisoned as White and Hispanic women, and 34 times as likely to be imprisoned as AAPI women. Among men, Black residents had the highest imprisonment rate (1,826 per 100,000), followed by AIAN men (1,443 per 100,000). Black men were more than twice as likely to be imprisoned as Hispanic men, more than five times as likely to be imprisoned as white men, and almost 13 times as likely to be imprisoned as AAPI men. AIAN men were almost twice as likely to be imprisoned as Hispanic men, more than four times as likely to be imprisoned as white men, and more than ten times as likely to be imprisoned as AAPI men.

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Civic engagement

Consistently higher turnout among white voters was challenged by historic Black voter turnout in 2012 and, to a lesser extent by historic Hispanic and Asian voter turnout in 2020: Voter turnout in presidential election years by race and ethnicity, select years 1992 to 2024

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The right to vote is the most powerful right of U.S. citizenship—and widespread voter participation is essential to a functional democracy. Yet many U.S. citizens ages 18 and older do not vote. Data on voter participation during presidential election years since 1992 reveal that turnout varies significantly by race and ethnicity and changes over time. Since 1992, voter turnout has typically been highest among white voters—ranging from 60.7% to 70.9%—although Black voter turnout saw a huge increase in 2008 and 2012 during the election and reelection of the nation’s first Black president, Barack Obama. In fact, 2012 was the only election in which Black voter turnout (66.2%) exceeded white voter turnout (64.1%). Hispanic and Asian voter turnout was less than 50% in all presidential election years between 1996 and 2016, until both groups had the largest turnout in decades in 2020 (53.7% and 59.7% respectively). In the 2024 presidential election, voter participation declined among Black, Hispanic and AAPI adults. While one’s personal decision to participate in an election can be influenced by any number of factors—including enthusiasm about a particular candidate or confidence in the democratic process—rampant forms of voter suppression in some states undoubtedly contribute to these disparities as well.

For more on the impact of state laws that limit access to voter registration, revoke the right to vote for returning (formerly incarcerated) citizens, or otherwise make it more difficult for certain populations to cast a ballot, see “State Voting Laws,” Brennan Center for Justice, accessed May 5, 2022;  “State Voting Rights Tracker,” Voting Rights Lab, accessed May 5, 2022.

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Amid dramatic decline in union membership since the 1970s, Black workers have held onto the highest rate of union membership for decades: Union membership rates, by race and ethnicity, 1973–2024

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Like the constitutional right to vote in civil society, union membership gives workers a voice—in this case, a voice at work. But as the chart shows, since 1973, union membership has declined for all racial and ethnic groups. Union membership is an important metric of the state of the American worker given the role that labor unions play in giving workers a stronger, collective voice to advocate for higher pay, better benefits, and training and promotional opportunities, as well as protections against discrimination and harassment. In a unionized workforce, for example, collective bargaining results in labor contracts that help to create greater transparency through clearly defined policies and pay structures. These contracts help reduce the potential for pay discrimination by limiting an employer’s discretion in paying different wages to comparably qualified individuals doing the same job and by providing workers with critical protections and direct recourse against other forms of exploitation or mistreatment. The benefits of union membership are a likely contributor to the higher union membership rate of Black workers, given their long history of unequal treatment relative to other groups of workers. Between 1973 and 1980, Hispanic workers also had higher rates of union membership than white workers. While the subsequent across the board decrease in union membership has brought union membership rates by race and ethnicity closer together, in 2024, Black workers were still more likely to be union members (11.7%) compared with white workers (10.0%), Asian American and Pacific Islander workers (8.9%), and Hispanic workers (8.5%).

Still, the labor movement, like any other U.S. institution, is not immune to racism. Unions must continue to become more diverse, inclusive, and dynamic as they serve the vital role of leveling the playing field for all workers.

For more on the benefits and protections conferred by union membership, see Celine McNicholas et al., Why Unions Are Good for Workers—Especially in a Crisis Like COVID-19, Economic Policy Institute, August 2020 and Valerie Wilson, “The Costs of Racial and Ethnic Labor Market Discrimination and Solutions That Can Contribute to Closing Employment and Wage Gaps,” testimony before the U.S. House of Representatives Select Committee on Economic Disparity and Fairness in Growth, January 20, 2022.

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Labor market

Black women have maintained the highest labor force participation rate amid post-1970 rise in women’s labor force participation overall: Labor force participation rate for women by race and ethnicity, 1973–2024

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The labor force participation rate is an important indicator of economic well-being. It shows the number of people in the labor force—people who are employed or unemployed but looking for work—as a share of the number of civilian, noninstitutionalized people ages 16 and older. Across racial and ethnic groups, women’s labor force participation rose significantly from the 1970s through the 1990s for a number a reasons: increased access to higher education, and the introduction and widespread availability of the birth control pill, to name a few. After leveling off during most of the first decade of the 2000s, labor force participation by women declined during or after the Great Recession of 2007–2009. And it declined again during the 2020 COVID-19 pandemic and recession as the burden of job losses and care responsibilities disproportionately impacted women. In 2024, Black women had the highest labor force participation rate at 60.5%, followed by Hispanic (58.9%), Asian (58.6%), white (56.7%), and American Indian and Alaska Native women (55.1%). While Latinas have historically had the lowest rates of labor force participation among women, their labor force participation rate had been climbing steadily in the four years leading up to the COVID-19 pandemic. Historically, Black women have had stronger labor force attachments than other groups of women. This is part of the legacy of being forced to work as enslaved people, but the necessity of work has continued for Black women who are often co-breadwinners if not sole earners for their households.

For more on the rise of women’s labor force participation from the 1970s see Elisabeth Jacobs and Kate Bahn “Women’s History Month: U.S. women’s labor force participation”, Washington Center for Equitable Growth, March 22, 2019.  

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Hispanic men have maintained the highest labor force participation rate even as labor force participation of all men has declined since the 1970s: Men’s labor force participation rate by race and ethnicity, 1973–2024

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Across all racial and ethnic groups, men’s labor force participation rates have declined significantly since the 1970s, with the sharpest decline occurring during and since the Great Recession of 2007–2009. While this trend in part reflects an aging population with a growing share of retirees, researchers have suggested that labor force participation has fallen among prime-age men (ages 25–54) due to a rise in serious health conditions that are a barrier to work, the emerging opioid crisis, or technological changes that encourage younger men  (under age 30) to allocate less time to work and more time to leisure activities like playing video games. Unlike with Black women, who have the highest labor force participation rate among women, Black men in 2024 had the lower labor force participation rates than white and Asian men (65.9%). And unlike with Hispanic women, who have historically had the lowest labor force participation rates among women, Hispanic men have had the highest labor force participation rate, which reached 75.5% in 2024. The ranking of men’s labor force participation rates by race and ethnicity has remained constant over the last three decades.

For more on the likely reasons for declining male labor force participation see Alan Krueger, Where Have All the Workers Gone? An Inquiry into the Decline of the U.S. Labor Force Participation Rate, Brookings Papers on Economic Activity, September 2017; and Mark Aguiar et al., “Leisure Luxuries and the Labor Supply of Young Men,” National Bureau of Economic Research Working Paper 23552, June 2017.

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Black and AIAN unemployment is consistently higher than unemployment of all other racial and ethnic groups: Annual unemployment rate by race and ethnicity, 1979–2024

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Relative rates of unemployment by race and ethnicity have been remarkably consistent over time. Typically, the annual unemployment rates of American Indian and Alaska Native (AIAN), Black, and Hispanic workers are significantly higher than those of white workers. The difference between Asian and white unemployment rates is smaller, and the size of the gap fluctuates, as does which group has the lower unemployment rate. In 2024, this pattern held, with an unemployment rate of 6.5% for AIAN workers, 6.0% for Black workers, followed by 5.1% for Hispanic workers, 3.6% for white workers, and 3.5% for Asian workers. While 2023 saw historical low rates for Black unemployment, one of the most enduring features of the U.S. labor market is the roughly 2-to-1 ratio of the Black and white unemployment rates.

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Higher education typically lowers a worker’s chances of being unemployed but does not eliminate racial and ethnic disparities in unemployment rates: Unemployment rate by race/ethnicity and educational attainment, 2024

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A breakdown of unemployment rates by race, ethnicity, and education level shows the limits of educational attainment as a factor in addressing inequitable economic outcomes. As the chart shows, racial and ethnic disparities in unemployment rates exist at every level of educational attainment. And Black workers have the highest rates of unemployment among all groups without a college degree. In fact, even at historically low rates of unemployment in 2024, only the most highly educated Black workers approached anything near unemployment rate parity with their white counterparts. The figure also shows that while education can contribute to better outcomes—unemployment rates are lower for all groups at higher levels of education—education alone does not necessarily create equal outcomes. Reading this chart alongside Chart 13 suggests that differences in the average unemployment rates of racial and ethnic groups can only be partially explained by relative differences in education, skill, experience or local labor market conditions—discrimination remains an undeniable factor.

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Black, Hispanic, and AIAN workers earn lower wages and have smaller gender wage disparities than their white and AAPI counterparts: Median wages by race/ethnicity and gender, 2024

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There are sharp differences in the wages earned by typical workers of different racial groups in the United States. Asian American and Pacific Islander (AAPI) and white workers are paid the highest wages at the median, while Black, Hispanic, and American Indian and Alaska Native (AIAN) workers are paid significantly less. The gender differences are also greater among AAPI and white workers than among Black, Hispanic and AIAN workers. While AAPI and white men far out-earn AAPI and white women, Black and Hispanic men and women have much more similar median wages.

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Even after controlling for education and other factors known to affect earnings, women—particularly Black and Hispanic women—are paid far less than white men: Regression-adjusted hourly wage gaps for women relative to non-Hispanic white men, by race and ethnicity, 2024

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Women of all racial and ethnic groups in the U.S. have a significant pay penalty by virtue of their gender, even when we account for several factors that could reasonably influence a worker’s productivity or wage rate, including education, marital status, age (a measure of potential experience) and geographic area (a measure of local labor market conditions). Black and Hispanic women face an additional pay penalty by virtue of their race or ethnicity. The chart depicts these wage gaps, presented as how much less women make than non-Hispanic white men. The fact that Black and Hispanic women earn about a quarter less than white men on average when calculating regression-adjusted wage gaps mean, then, that the pay penalty is not a result of differences in formal education between those groups of women and white men. One partial explanation for these wage disparities is occupational segregation, by which women of color are more highly concentrated in occupations with low pay, even relative to their education level. However, women of all races and ethnicities also often earn less than men in the same occupation (not shown in the chart), an indication of potential pay discrimination.

For more on occupational segregation and on gender pay gaps by occupation, see Jessica Schieder and Elise Gould, Women’s Work” and the Gender Pay Gap: How Discrimination, Societal Norms, and Other Forces Affect Women’s Occupational Choices—and Their Pay, Economic Policy Institute, July 2016; Emily Carew and Valerie Wilson, “Latina Equal Pay Day: Latina Workers Remain Greatly Underpaid, Including in Front-Line Occupations,” Working Economics Blog, Economic Policy Institute, October 20, 2021; Valerie Wilson, “Black Women Face a Persistent Pay Gap, Including in Essential Occupations During the Pandemic,” Working Economics Blog, Economic Policy Institute, August 2, 2021.

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Income, poverty, and wealth

Racial and ethnic disparities in median household income have been largely persistent across time: Inflation-adjusted median household income (2024 dollars), by race and ethnicity, 1972–2024

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In the United States, households of different racial and ethnic backgrounds bring in significantly different amounts of income and have done so for decades. At the median, Black, Hispanic, and American Indian and Alaska Native (AIAN) households earn the least on an annual basis, while Asian and white households earn the most. It is notable, though, that in 2023, Black households had the highest household income on record and experienced the largest increase in income between 2020 and 2023. Significant gaps in employment opportunities (shown in Chart 13) and lower wage levels (shown in Chart 15) translate into lower incomes among Black, Latino, and AIAN households. Household income is also a function of the number of earners in a household. Though not shown here, past EPI research found that in the pre-pandemic economy, about a third of Black nonelderly households (where the head of household is age 18–64) had two or more earners, compared with nearly half of white and Hispanic nonelderly households. This racial disparity in the number of household earners is not just a function of how many working-age adults live in the household, or family structure, but is another measurable consequence of the persistent 2-to-1 ratio between the Black and white unemployment rates (shown in Chart 13). As income inequality in the United States has increased in general over the past 50 years, disparities between the least and most well-off groups have continued to persist and, in some cases, have grown.  

For more on earners per household by race, see Elise Gould and Valerie Wilson, Black Workers Face Two of the Most Lethal Preexisting Conditions for Coronavirus—Racism and Economic Inequality, Economic Policy Institute, June 2020. For more on increasing income inequality, see Elise Gould, “Decades of Rising Economic Inequality in the U.S.,” testimony before the House of Representatives Ways and Means Committee, Washington, D.C., March 27, 2019.

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Black and AIAN households are more likely to have the lowest annual incomes—under $25,000 per year in 2024: Share of households within given income range by race and ethnicity, 2024

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This chart extends beyond the data on median or midpoint of household income shown in Chart 17 to provide a more detailed look at where different groups fall across the entire household income distribution. In 2024, 22.9% of Black households, 23.3% of American Indian and Alaska Native households, 15.1% of Hispanic households had annual incomes under $25,000, compared with just 11.4% of white households and 9.3% of Asian households. This $25,000 figure is well below the 2024 official poverty threshold for a family of two adults and two children ($31,812). Conversely, 29.3% of Asian households and 17.8% of white households had annual incomes at or above $200,000—the highest income category—compared with only about 6%-10% of Black, AIAN, and Hispanic households.  

Poverty threshold data can be found in the U.S. Census Bureau’s Poverty in the United States: 2024 data tables, published September 09, 2025 

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Persistently elevated AIAN, Black, and Hispanic child poverty rates have thwarted progress reducing overall child poverty in the U.S.: Child poverty rates, by race and ethnicity, 1974–2024

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A cruel and unfortunate reality of structural racism in the U.S. economy is that even in the “best” of economic times, Black, American Indian, and Alaska Native (AIAN), and Hispanic children experience much higher rates of poverty than white children. In 2024, 30.5% of AIAN children, 25.4% of Black children and 20.2% of Hispanic children lived below the official poverty threshold, compared with just 8.2% of non-Hispanic white children 6.4% of Asian children. While child poverty has fallen significantly for Black, Hispanic, and Asian American children over the past 40 years, Black and Hispanic child poverty rates remained over 20% in 2024. Additionally, in 2024, AIAN children had the highest rates of child poverty at over 30 percent (30.5%). This large and persistent disparity in child poverty combined with the fact that Black and Hispanic children have become an increasing share of the underage 18 population over time (see Chart 1 and Chart 4) has resulted in very little change in the overall child poverty rate since 1974. Given the long-term effects of exposure to poverty in childhood, addressing these persistent disparities must play a role in our approach toward building equity and moving the needle on child poverty.

For more on the long-term effects of exposure to poverty in childhood, see Kerris Cooper and Kitty Stewart, “Does Money Affect Children’s Outcomes? An Update,” CASEpapers (203), The London School of Economics and Political Science, July 2017; Randall Akee et al., “Parents’ Incomes and Children’s Outcomes: A Quasi-Experiment,” American Economic Journal: Applied Economics, January 2010.

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Poverty rates are higher among AIAN, Black and Hispanic working-age adults: Poverty rates for age 18–64, by race and ethnicity, 1974–2024

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While poverty across the working-age population (ages 18 to 64) is lower than that for children (see Chart 19), disparities by race and ethnicity follow a similar trend, with American Indian and Alaska Native (AIAN), Black, and Hispanic adults more likely to be impoverished than white and Asian adults. Poverty is a measure of economic deprivation, and among working-age adults in particular, reflects disparities in unemployment, wages, and income. Life circumstances, such as severe disability and major illness—which can also limit earned income or quickly deplete any available savings—also contribute to poverty for this age group. The racially coded misrepresentation of poverty as some kind of moral or cultural pathology has hindered the political will needed to sustain and strengthen vital income supports that have proven effective in fighting poverty.  

For more on the misrepresentation of poverty as a cultural pathology see William “Sandy” Darity Jr., “Revisiting the Debate on Race and Culture: The New (Incorrect) Harvard/Washington Consensus.” Du Bois Review: Social Science Research on Race 8, no. 2, 467–476. For more on the vital income supports that would lessen poverty see Asha Banerjee and Ben Zipperer, “Social Insurance Programs Cushioned the Blow of the COVID-19 Pandemic in 2020,” Working Economics Blog, Economic Policy Institute, September 14, 2021.

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There are large racial disparities in poverty at older ages (65 and older)—likely reflecting differences in retirement preparedness and/or lifetime income disparities: Poverty rates for people ages 65 and older, by race and ethnicity, 1974–2024

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The poverty seen among older Americans in the chart is most likely the result of a lifetime of low earnings and a lack of retirement preparedness. While research shows that Social Security plays a critical role in keeping poverty rates among older Americans lower than they otherwise would have been (not depicted in the chart), older Black, Hispanic, and American Indian and Alaska Native (AIAN) adults still have relatively high poverty rates. Older Asian Americans are also more likely to live in poverty than older white Americans. Additionally, older Asian Americans have higher poverty rates than younger Asian Americans (see Chart 19 and Chart 20). This is likely due to a larger share of older Asian Americans having worked comparatively few years in the United States, or in jobs where they were unable to accumulate the necessary years for Social Security eligibility, leaving them less able to take advantage of work-based social safety net programs like Social Security.

For more on the causes of poverty among older Americans and the capacity of Social Security to lift older Americans—particularly women and people of color—out of poverty, see Kathleen Romig, Social Security Lifts More People Above the Poverty Line Than Any Other Program, Center on Budget and Policy priorities, April 2022. For more on the economic condition of the older Asian American population, see Victoria Tran, “Asian American Seniors Are Often Left Out of the National Conversation on Poverty,” Urban Wire (Urban Institute blog), May 31, 2017.

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Racial wealth disparities are stark and persistent, reflecting a history of exploitation and exclusion: Median family net worth by race and ethnicity, selected years from 1989 to 2022

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The chart shows sharp racial and ethnic disparities in net worth observed across time in the United States. Though not shown in the chart, these disparities reflect the differences in lived economic experiences between white, Black, Hispanic, and Asian families. Wealth can be accumulated both within and across generations, such that a high net worth can result from the benefit of prime earning years with 1) relatively few employment disruptions, 2) access to wealth-building savings and investment vehicles, 3) relatively few serious negative health shocks, and 4) well-timed wealth transfers from parents and grandparents.  The typical white household has many times the wealth of the typical Black or Hispanic household due to 1) their privileged position in the American labor market, which grants them access to more consistent and higher-quality employment opportunities, 2) their more limited exposure to the health risks brought on by poorer living conditions and discrimination, and 3) their history of access to wealth-building opportunities from which other groups have been excluded. 

In 2022, the Survey of Consumer Finances reported household wealth data for the Asian American population for the first time. Asian household wealth far outstrips that of other households in 2022, though this statistic should be couched with appropriate context: Asian Americans are an incredibly diverse group with varying economic circumstances related to, among other things, immigration history and country of origin; moreover, the SCF oversamples households that are likely to be wealthy. Further disaggregation of wealth data by immigration history could be useful in illuminating wealth disparities within the Asian American population.  

For more on the systemic barriers to Black wealth building see Natasha Hicks, Fenaba Addo, Anne Price, and William Darity Jr., Still Running Up the Down Escalator: How Narratives Shape Our Understanding of Racial Wealth Inequality, The Samuel Dubois Cook Center on Social Equity, 2021. For more on the barriers to Hispanic wealth building see Dedrick Asante-Muhammad, Alexandra Perez, and Jamie Buell, “Racial Wealth Snapshot: Latino Americans.” National Community Reinvestment Coalition, September 17, 2021.

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Health

Racial disparities in life expectancy reflect the cumulative disadvantage of living as a minority in the United States: Women’s and men’s life expectancy at birth, by race and ethnicity, 2022

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Racial disparities in life expectancy have been documented as far back as statistics on life expectancy have been recorded in the U.S, with clear and persistent distinctions between privileged groups and disadvantaged groups. That is, rather than groups shifting in their ranking of life expectancy randomly across time, there are distinct patterns in which groups live longer lives than others. In general, Black and AIAN women and men live much shorter lives than white and Asian women and men. 

In 2022, Asian American women and men had the longest life expectancies, at 86.3 years and 82.3 years respectively. AIAN women and men had the lowest life expectancies, at 64.5 years and 71.3 years respectively. This massive gap in life expectancy approaching two decades can be attributed to several factors, many of which are structural and rooted in economic disparity. In recent years, life expectancy gains have disproportionately gone to those in the highest income categories, who are disproportionately white and Asian (see Chart 18). Alongside the history of white supremacy and anti-Black racism in the United States, these economic roots of also help to explain persistent the persistent Black-white gap in life expectancy. That Black-white gap has fluctuated somewhat over the past decade, shrinking due to the impact of opioid-related “deaths of despair” on lowering white life expectancy, and reopening as COVID-19 related mortality disproportionately impacted Black and brown communities. 

Hispanic women and men tend to live longer than white women and men, though that life expectancy advantage has been shown to diminish with subsequent generations of U.S.-born Latinos. This suggests that there may be something uniquely deleterious about living as a minority in the United States.

For more on gaps in life expectancy, effects of the opioid crisis, and Hispanic life expectancy see Congressional Research Service, The Growing Gap in Life Expectancy by Income: Recent Evidence and Implications for the Social Security Retirement Age, CRS Report R44846, July 6, 2021; Helena Hansen and Julie Netherland, “Is the Prescription Opioid Epidemic a White Problem?” American Journal of Public Health 106, no. 12 (December 2016), 2127–2129 (doi: 10.2105/AJPH.2016.303483); Osea Giuntella, “The Hispanic Health Paradox: New Evidence from Longitudinal Data on Second and Third-Generation Birth Outcomes,” SSM – Population Health, vol. 2 (December 2016), 84–89 (doi.org/10.1016/j.ssmph.2016.02.013).

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The Affordable Care Act significantly reduced uninsured rates across racial and ethnic groups, but disparities remain: Uninsured rates by race and ethnicity, 2008–2024

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The Affordable Care Act (the ACA or “Obamacare”) expanded health insurance coverage to middle- and low-income Americans, which disproportionately benefited those groups with the least access—Hispanic Americans and American Indians and Alaska Natives (AIAN), and to a lesser extent Black Americans. Despite the marked improvement in health insurance coverage rates since the implementation of ACA, disparities between groups remain stark, with Hispanic and AIAN uninsured rates double Black rates, and approaching four times as high as the uninsured rates of white and Asian American and Pacific Islanders (AAPI). Early diagnosis and treatment are essential to minimizing the severity of chronic illnesses, and regular health care is important for promoting better overall health. The lack of health insurance often results in a choice to delay receiving health care until one’s condition is critical, contributing to racial disparities in health outcomes and life expectancy.

For more on how the ACA expanded health coverage, particularly to certain groups, see Samantha Artiga, Latoya Hill, Kendal Orgera, and Anthony Damico. “Health Coverage by Race and Ethnicity, 2010–2019,” Kaiser Family Foundation, July 16, 2021; Jesse Cross-Call, Medicaid Expansion Has Helped Narrow Racial Disparities in Health Coverage and Access to Care, Center on Budget and Policy Priorities, October 2020.

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Black mothers are far more likely to die from pregnancy-related causes than are white and Hispanic mothers: Pregnancy-related deaths per 100,000 live births by race and ethnicity, 2023

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Maternal mortality rates are a stark indicator of racial disparities in public health in the United States. Black women are over twice as likely to die from a pregnancy-related cause as white women, almost three times as likely as Hispanic women, and almost four times as likely as Asian women. Although not shown in the chart, these racial disparities persist regardless of a woman’s social or economic status. Health status and differential access to quality prenatal care play a major role in maintaining these disparities, as does structural racism more generally. To adequately address these disparities in maternal health outcomes, we must confront racism and bias in the U.S. health care system and the implications for how health care providers and personnel communicate with and treat patients.

For more on the causes and solutions to Black maternal mortality, see “Working Together to Reduce Black Maternal Mortality,” Centers for Disease Control and Prevention, April 6, 2022.

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AIAN population 1-year estimates and 3-year rolling averages, select charts

Appendix

Appendix

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Key findings

• Growth of CEO compensation (1978–2023). Since CEO pay is mostly stock based—and the value of stocks changes frequently—calculating it is not entirely straightforward. We use two measures to give a fuller picture: a backward-looking measure—realized compensation—and a forward-looking measure—granted compensation. Realized compensation of the top CEOs shot up 1,085% from 1978 to 2023 (adjusting for inflation), compared with the slow 24% growth in a typical worker’s annual compensation. CEO granted compensation rose 932% from 1978 to 2023.
• Changes in the CEO-to-worker compensation ratio (1965–2023). The realized CEO-to-worker compensation ratio was 290-to-1 in 2023, in stark contrast to the 21-to-1 ratio in 1965. Over the last two decades, the ratio has been far higher than at any point from the 1960s to the early 1990s. The granted CEO-to-worker compensation ratio was to 192-to-1 in 2023—significantly lower than its peak of 398-to-1 in 2000, but still many times higher than the 45-to-1 ratio of 1989 or the 15-to-1 ratio of 1965.
• Changes in the composition of CEO compensation. While stock-related components constitute a large and growing share of total compensation, the composition of CEO compensation is shifting away from the use of stock options and toward stock awards—a promising move to align CEO pay to longer-term incentives. In 2006, stock options accounted for just over 70% of stock-related pay in realized CEO compensation. But in 2023, stock options made up only 22%, with vested stock awards accounting for the rest. Stock-related pay (exercised stock options and vested stock awards) averaged $16.7 million in 2023 and accounted for 77.6% of average realized CEO compensation.
• Changes in the CEO-to-top-0.1% compensation ratio. CEO compensation has been breaking away from that of other very highly compensated workers. Over the last three decades, compensation grew far faster for CEOs than it did for the top 0.1% of wage earners (those earning more than 99.9% of wage earners). CEO compensation in 2022 (the latest year for which data on top 0.1% wage earners are available) was 9.4 times as high as wages of the top 0.1% of wage earners, a ratio 6.8 points greater than the 2.6-to-1 average CEO-to-top-0.1% ratio over the 1965–1978 period.
• Implications of the growth of the CEO-to-top-0.1% compensation ratio. The fact that CEO compensation has grown much faster than the pay of the top 0.1% of wage earners indicates that CEO compensation growth does not simply reflect a competitive race for skills (the “market for talent”) that would also increase the value of highly paid professionals more generally, but instead suggests the growth of substantial economic rents (income not related to a corresponding growth of productivity) in CEO compensation. CEO compensation does not appear to reflect the greater productivity of executives, but their ability to extract concessions from corporate boards—thanks to dysfunctional systems of corporate governance in the United States. But because so much of CEOs’ income constitutes economic rent, there would be no adverse impact on the economy’s output or on employment if CEOs earned less or were taxed more.
• Cost of rising inequality for most workers. If very high earners hadn’t pulled away so dramatically, there would be room for broader-based wage growth for the rest of the workforce. Most of the rise in inequality over the last four decades has redistributed wages away from most workers.

Measuring CEO compensation

We focus on the average compensation of CEOs at the 350 largest publicly owned U.S. firms (firms that sell stock on the open market) by revenue. Our source of data is the S&P Compustat ExecuComp database for the years 1992 to 2023, and survey data published by The Wall Street Journal for selected years back to 1965. We maintain the sample size of 350 firms each year when using the Compustat ExecuComp data.2

Two ways of measuring CEO compensation

We use two measures of CEO compensation: one based on compensation as “realized,” and the other based on compensation as “granted.” Both measures include the same measures of salary, bonuses, and long-term incentive payouts. The difference lies in how each measure treats stock awards and stock options—major components of CEO compensation that change value from when they are first provided, or granted, to when they are realized.

The realized measure of compensation includes the value of stock options when they are actually realized or exercised, capturing the change in value from when the options were granted to when the CEO invokes the options, usually after the stock price has risen and options value has increased. The realized compensation measure also values stock awards at their value when vested (usually three years after being granted), capturing any change in the stock price as well as additional stock awards provided as part of a performance award.

The granted measure of compensation values stock options and restricted stock awards by their “fair value” when granted. This fair value must be estimated based on several assumptions about the future path of stock prices, interest rates, and other variables. Compustat estimates of the fair value of options and stock awards as granted are derived from the Black-Scholes model. For details on the construction of these measures and benchmarking to other studies, see Sabadish and Mishel (2013).

In some sense, realized measures of pay are backward-looking, while granted measures are forward-looking. Realized measures of stock-related pay in 2023 are essentially measuring how much money CEOs were able to bring home based (largely) on the past year’s stock options and awards. Granted measures of stock-related pay in 2023 are essentially estimating how much new options and awards are likely to pay off in future years. Because neither measure perfectly maps onto a measure of how much a CEO “earned” in a single particular year, reporting both can be useful for understanding the full picture.

Trends in CEO compensation

Table 1 presents the trends in inflation-adjusted realized and granted CEO compensation for selected years from 1965 to 2023 (columns 1 and 2).3 Real changes in the stock market are as measured by the S&P 500 Index and the Dow Jones Industrial Average in columns 3 and 4. In general, CEO compensation follows the movement of the stock market

The last year of data saw a striking exception to that phenomenon: The drop in CEO compensation from 2022 to 2023 was large compared with very little change in the stock market over that period. Realized CEO compensation (reported in Table 1) declined by 19.4% to $22.2 million from 2022 to 2023.4 The granted measure of CEO compensation, which values stock options granted in 2023 (not those exercised), also fell by 14.1%. While it is somewhat puzzling for CEO pay to fall as the stock market largely held steady, it’s possible that the shift in stock-related pay away from options played a role, and this overall divergence will likely turn around with the stock market gains so far in 2024.

Longer-term trends in CEO compensation

Table 1 also presents the longer-term trends in CEO compensation for selected years from 1965 to 2023.5 Our discussion of longer-term trends focuses mostly on the realized compensation measure of CEO compensation—the measure preferred in most economic analyses. In general, CEO compensation follows the movement of the stock market but tends to exceed even the largest stock market gains.

Table 1

As mentioned above, realized CEO compensation has, in general, risen and fallen along with the S&P 500 Index over the last five and a half decades. But the period from 1965 to 1978 is an exception: Although the stock market fell by roughly half between 1965 and 1978, realized CEO compensation increased by 79.9%.

To assess the role of CEO compensation in the overall increase in income and wage inequality of the last four decades, it is best to gauge growth since 1978.6 For the period from 1978 to 2023, realized CEO compensation increased 1,085%—77% faster than stock market growth (based on the growth of the S&P 500) and substantially faster than the 24% growth in the typical worker’s compensation over the same period. CEO granted compensation grew 932% over this period.

Trends in the CEO-to-worker compensation ratio

Table 1 allows us to compare CEO compensation with that of a typical worker by showing the average annual compensation (wages and benefits of a full-time, full-year worker) of private-sector production/nonsupervisory workers (a group covering more than 80% of payroll employment; see Gould 2020) in column 5.

From 1992 onward, column 6 of the table also identifies the average annual compensation of production/nonsupervisory workers in the key industries of the firms included in the sample. We take this compensation as a proxy for typical workers’ pay in these firms and use it to calculate the CEO-to-worker compensation ratio for each firm.

Columns 7 and 8 present trends in the ratio of CEO-to-worker compensation, using both measures of CEO compensation. We compute this ratio, which illustrates the increased divergence between CEO and worker pay over time, in two steps:

• The first step is to construct, for each of the 350 largest U.S. firms, the ratio of the CEO’s compensation to the annual average compensation of production and nonsupervisory workers in the key industry of the firm (data on the pay of workers at individual firms are not available).7
• The second step is to average that ratio across all 350 firms. Note that trends before 1995 are based on the ratio of average top-company CEO pay to the compensation of economywide (not industry-specific) private-sector production/nonsupervisory workers.

CEO-to-worker compensation trends are depicted in Figure A.

Figure A

As Table 1 and Figure A show, using the realized measure of CEO compensation, CEOs of major U.S. companies earned 21 times as much as the typical worker in 1965. This ratio grew to 31-to-1 in 1978 and 61-to-1 by 1989. It surged in the 1990s, hitting 384-to-1 in 2000, at the end of the 1990s recovery and at the height of the stock market bubble.8

The fall in the stock market after 2000 reduced CEO stock-related pay, such as realized stock options, and caused CEO compensation to tumble in 2002 before beginning to rise again in 2003. Realized CEO compensation recovered to a level of 330 times worker pay by 2007, still below its 2000 level. The financial crisis of 2008 and accompanying stock market decline reduced CEO compensation between 2007 and 2009, and the CEO-to-worker compensation ratio fell in tandem.

Over the 2009–2021 period, another surge in realized CEO compensation brought the ratio to 405-to-1, a historic high. The ratio experienced significant declines between 2021 and 2023, as CEO pay fell. In 2023, the CEO-to-worker compensation ratio was 290-to-1. Even with the recent losses, the 2023 ratio is still far higher than it was in the 1960s, 1970s, 1980s, and the early 1990s.

The pattern using the granted measure of CEO compensation is similar. The CEO-to-worker pay ratio peaked in 2000 at 398-to-1, even higher than the 384-to-1 ratio using the realized compensation measure. By 2023, the granted compensation ratio decreased to 192-to-1. This level is far lower than its peak in 2000, but still much greater than the ratios in 1995 (131-to-1), 1989 (45-to-1), or 1965 (15-to-1).

The extraordinarily high level of the CEO-to-worker compensation ratio reflects the strikingly different trajectory of CEO pay compared with typical worker pay over the past 40 years. On the one hand, there has been little growth in the compensation of a typical worker since the late 1970s: It has grown just 24.0% over the 45 years from 1978 to 2023, despite a corresponding growth of net economywide productivity of 74.8% (EPI 2024). Meanwhile, the 1,085% growth in realized CEO compensation from 1978 to 2023 (excluding 1979, since there are no data for that year) exceeded the growth in productivity in that period.

Changes in the composition of CEO compensation

Stock-related components of CEO compensation constitute a large and increasing share of total compensation. Realized stock awards and stock options made up 70.2% of total CEO compensation in 2006 ($15.1 million out of $21.5 million) and 76.6% of total compensation in 2023 ($17.0 million out of $22.2 million; not shown in chart). The growth of these stock-related components from 2006 to 2022 explains over 100% of the total growth in CEO realized compensation over this period.9 Of the stock-related components of compensation, stock awards make up a growing share, while the share of stock options in CEO compensation packages has decreased over time.

There is a simple logic behind companies’ decisions to shift from stock options to stock awards in CEO compensation packages, as Clifford (2017) explains. With stock options, CEOs can only make gains: They realize a gain if their company’s stock price rises beyond the price of the initial options granted, and they lose nothing if the stock price falls. Having nothing to lose—but potentially a lot to gain—might lead options-holding CEOs to take excessive risks to bump up their company’s stock price to an unsustainable short-term high.

Stock awards, on the other hand, likely promote better long-term alignment of a CEO’s goals with those of shareholders. A stock award has a value when granted or vested and can increase or decrease in value as the firm’s stock price changes. If stock awards have a lengthy vesting period of three to five years, then the CEO has an interest in lifting the firm’s stock price over that period while being mindful to avoid any implosion in the stock price—to maintain the value of what they have. In some sense, the shift from options to awards might represent a small glimmer of hope that CEO labor markets are getting a bit less dysfunctional (though there is obviously a long way to go).

CEO pay is excessive even relative to other extraordinarily privileged actors in the economy

This section highlights how distorted CEO pay is, even compared with the most privileged workers in the U.S. economy—the top 0.1%. CEO compensation has grown a great deal since 1965 and so has the pay of other high-wage earners.

To some analysts, this suggests that the dramatic rise in CEO compensation has been driven largely by the demand for the skills of CEOs and other highly paid professionals. In this interpretation, CEO compensation is being set by the market for “skills” or “talent,” not by managerial power or the ability of CEOs to extract economic rents (income in excess of their contribution to actually producing it). The “market for talent” argument is based on the premise that it is other professionals, too, not just CEOs, who are seeing a generous rise in pay. The most prominent example of this argument comes from Kaplan (2012a, 2012b), who claims that a stable ratio of CEO-to-top 0.1% pay indicates that market power is not operating uniquely in CEO pay markets.

This lies in contrast to the explanation offered by Bebchuk and Fried (2004) and Clifford (2017) who claim that the long-term increase in CEO pay is a result of managerial power. Similarly, Bivens and Mishel (2013) argue that CEO pay gains are not the result of a competitive market for talent, but rather reflect the power of CEOs to extract concessions from corporate boards. A growing CEO-to-top-0.1% pay ratio would indicate that the scope for this unique exercise of market power in CEO labor markets is large.

To test the alternative theories, we compare CEO-to-top 0.1% pay ratios beginning in 1965, shown in Figure B. In 2022 (the last year available for the top 0.1% data series), this ratio was 9.4, meaning that CEOs made over 9 times as much in salary as even the most privileged 0.1% of workers in the economy. This 9.4 ratio in 2022 was 6.8 points higher than the historical average of 2.6 over the 1965–1978 period. This is a large change, meaning that the relative pay of CEOs increased by an amount equal to the total annual wages of nearly seven of these very high wage earners.10

CEO pay rising far faster than that of the top 0.1% suggests that market power is uniquely operating in CEO pay markets and rising pay is not a result of a competitive market for talent.

Figure B

The extremely rapid growth of CEO compensation compared with the earnings of the top 0.1% of wage earners does not mean that the top 0.1% fared poorly. In fact, the very highest earners—those in the top 0.1% of all earners—saw their annual earnings (including realized stock options and vested stock awards) grow fantastically, though far less than the compensation of the CEOs of large firms (which are also a very small subset of the top 0.1%). Top 0.1% annual earnings grew a healthy 377.7% from 1978 to 2022, though that was just a small fraction of the 1,370.4% growth of realized CEO compensation achieved between 1978 and 2022 (strict comparability on the years 1979 to 2023 is not available because we do not have CEO data for 1979 nor top 0.1% data for 2023).

Since CEO pay growing far faster than the pay of other high earners is evidence of the presence of rents, one can conclude that today’s top executives are collecting substantial rents, claiming income that greatly exceeds their contribution to producing it. This means that if CEOs were paid less, there would be no loss of productivity or output in the economy.

The large discrepancy between the pay of CEOs and other very-high-wage earners also casts doubt on the claim that CEOs are being paid these extraordinary amounts because of their special skills and the market for those skills. It is unlikely that the skills of CEOs of very large firms are so outsized and disconnected from the skills of other high earners that they propel CEOs past most of their cohort in the top one-tenth of 1%. For everyone else, the distribution of skills, as reflected in the overall wage distribution, tends to be much more continuous, so this discontinuity is evidence that factors beyond skills drive the compensation levels of CEOs.

The stock market and CEO pay

There is normally a tight relationship between overall stock prices and CEO compensation. Some commentators draw on this regularity to claim that CEOs are being paid for their performance since, in the commentators’ view, the goal of CEOs is to raise their companies’ stock prices.

However, the stock–CEO compensation relationship does not necessarily imply that CEOs are enjoying high and rising pay because their individual productivity is increasing (for example, because they head larger firms, have adopted new technology, or for other reasons). CEO compensation often grows strongly when the overall stock market rises, and individual firms’ stock values are swept up in this wake. This is a marketwide phenomenon, not one based on the improved performance of individual firms.

Most CEO pay packages allow pay to rise whenever the firm’s stock value rises. In other words, CEOs can cash out stock options regardless of whether the rise in the firm’s stock value was exceptional relative to comparable firms in the same industry. Similarly, vested stock awards increase in value when the firm’s stock price rises in simple correspondence to a marketwide escalation of stock prices. If corporate taxes are reduced and profits rise accordingly, leading to higher stock prices, is it accurate to say that CEOs have made their firms perform better?

The connection between CEO pay and overall inequality

Some observers argue that exorbitant CEO compensation is merely a symbolic issue, with no real consequences for most workers. But on the contrary, the escalation of CEO compensation— and of executive compensation more generally—has likely helped fuel the wider growth of top 1% and top 0.1% incomes, contributing to widespread inequality.

Our data apply to the CEOs of the very largest firms. We presume that these CEOs set the pay standards followed by other executives—of the largest publicly owned firms, of smaller publicly owned firms, of privately owned firms, and of major nonprofit firms (hospitals, universities, charities, etc.). If so, then CEO compensation is indeed a nontrivial driver of top incomes.

Another implication of rising pay for CEOs and other executives is that it reflects income that would otherwise have accrued to others instead of being concentrated at the highest level. What these executives earned was not available for broader-based wage growth for other workers (Bivens and Mishel 2013). It is useful, in this context, to note that wages for the bottom 90% would be 16% higher today had wage inequality not increased between 1979 and 2022.11

Most of the rise in inequality took the form of redistributing wages away from the bottom 90%. This group’s share of total wage income fell from 69.8% in 1979 to 60.1% in 2022. Most of the loss experienced by the bottom 90% went to the top 1%, whose wage share grew substantially from 7.3% to 12.9% in these same years. And even among this gain going to the top 1%, most of it went to the top 0.1%, who saw their share of overall wage income nearly triple from 1.6% to 4.6% between 1979 and 2022. In other words, the bottom 90% lost 9.7% of total wage income between 1979 and 2022, and nearly 60% of this loss (5.6 of 9.7 percentage points) went to the top 1%, while 30% (or 3.0 of 9.7 percentage points) went to just the top 0.1%.

Policy recommendations: Reversing the trend

Several policy options could reverse the trend of excessive executive pay and broaden wage growth. Ideally, tax reforms would be paired with changes in corporate governance:

• Implementing higher marginal income tax rates at the very top would limit rent-seeking behavior and reduce the incentives for executives to push for such high pay.
• Setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation is another option. Clifford (2017) recommends setting a cap on executive compensation and taxing companies on any amount over the cap, similar to the way baseball team payrolls are taxed when salaries exceed a cap. One key consideration in making policies like this work concerns “fissuring”—the practice of spinning off the lower-paid workers in a given firm and using contracted third-party service providers to replace these functions (often rehiring the exact same workers but now no longer as permanent employees of the old firm). Such fissuring would boost firm-specific measures of typical workers’ pay and reduce the CEO-to-worker pay ratio, without changing any economic reality. The newly contracted workers would not necessarily see any higher pay, and the CEOs would not need to accept lower pay. This type of fissuring is endemic in the U.S. economy and is a policy obstacle to many efforts to constrain specific firms’ behavior through incentives like this.

Baker, Bivens, and Schieder (2019) review policies that would restrain CEO compensation and explain how tax policy and corporate governance reform can work in tandem:

Tax policy that penalizes corporations for excess CEO-to-worker pay ratios can boost incentives for shareholders to restrain excess pay, [but] to boost the power of shareholders [to restrain pay], fundamental changes to corporate governance have to be made. One key example of such a fundamental change would be to provide worker representation on corporate boards.

Given the vital importance of changing shareholders’ ability to restrain pay (not just their incentive to do so), another policy that could potentially limit executive pay growth is greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

The CEOs examined in this report head large firms. These firms, almost by definition, enjoy a degree of market power that some studies suggest has grown in recent decades. It seems that CEOs and other executives may have been prime beneficiaries of these firms’ greater market power. Using the tools of antitrust enforcement and regulation would help to restrain these firms’ market power. This would not only promote economic efficiency and competition but might help restrain executive pay as well.

Notes

1. For the pay of the typical worker, we use average compensation (wages and salaries plus benefits) of a full-time, full-year production or nonsupervisory worker (a group that makes up about 80% of the private-sector workforce).

2. In earlier reports, our sample for each year was sometimes fewer than 350 firms because some of these large firms did not have the same CEO for the entire (or most of the) year or the compensation data were not yet available. We now examine the top 350 firms with the largest revenues each year for which there are data to not let changes in sample size affect annual trends.

3. Authors’ analysis of the Compustat ExecuComp data.

4. Note that while we report executive compensation in millions in the text, and we round numbers to the nearest thousand in Table 1, dollar and percent changes are calculated using unrounded data.

5. We choose which years to present in the table based in part on data availability. Where possible, we choose cyclical peaks (years of low unemployment). It may be useful to note that our data here do not match earlier versions of this research (for example, see Table 1 in Bivens and Kandra 2023). While there are many reasons the data vary from year to year—primarily changes in the list of top 350 public firms by sales—another difference is that we are now using a chained Consumer Price Index to measure inflation because it better captures consumers’ ability to substitute away from goods and services with relatively faster price growth.

6. A better comparison would be to the low-unemployment year of 1979, but those data are not available.

7. There are a limited number of firms, which existed only for certain years between 1992 and 1996, for which a North American Industry Classification System (NAICS) value is unassigned. This makes it impossible to identify the pay of the workers in the firm’s key industry. These firms are therefore not included in the calculation of the CEO-to-worker compensation ratio.

8. As noted earlier, it may seem counterintuitive that the two ratios for 2000 are different from each other when the average CEO compensation is the same. It is important to understand that (as described later in this report) we do not create the ratio from the averages; rather we construct a ratio for each firm, and then average the ratios across firms.

9. The managerial power view asserts that CEOs have excessive, noncompetitive influence over the compensation packages they receive. Rent-seeking behavior is the practice of manipulating systems to obtain more than one’s fair share of wealth—that is, finding ways to increase one’s own gains without actually increasing the productive value one contributes to an organization or the economy.

10. A one-point rise in the ratio is the equivalent of the average CEO earning an additional amount equal to that of the average earnings of someone in the top 0.1%.

11. This follows from the fact that from 1979 to 2022, annual earnings for the bottom 90% rose by 32.9%, while the average growth across all earners was 54.3% (Gould and Kandra 2023).

Acknowledgments

The authors thank the Stephen M. Silberstein Foundation for its generous support of this research. Steven Balsam has provided useful advice on data construction and interpretation over the years. He is an accounting professor at Temple University and author of Executive Compensation: An Introduction to Practice and Theory (2007) and Equity Compensation: Motivations and Implications (2013). Steven Clifford, author of The CEO Pay Machine: How It Trashes America and How to Stop It (2017), has also provided technical advice. Clifford served as CEO for King Broadcasting Company from 1987 to 1992 and National Mobile Television from 1992 to 2000 and has been a director of 13 public and private companies. The authors also wish to acknowledge Larry Mishel, former EPI president and economist, who was valuable in setting the foundation for EPI’s work on CEO pay.

References

Baker, Dean, Josh Bivens, and Jessica Schieder. 2019. Reining in CEO Compensation and Curbing the Rise of Inequality. Economic Policy Institute, June 2019.

Bebchuk, Lucian, and Jesse Fried. 2004. Pay Without Performance: The Unfulfilled Promise of Executive Remuneration. Cambridge, Mass.: Harvard Univ. Press.

Bivens, Josh, and Lawrence Mishel. 2013. “The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes.” Economic Policy Institute Working Paper no. 296, June 2013.

Bivens, Josh, and Jori Kandra. 2023. CEO Pay Slightly Declined in 2022: But It Has Soared 1,209.2% Since 1978 Compared With a 15.3% Rise in Typical Workers’ Pay. Economic Policy Institute, September 2023.

Bureau of Economic Analysis (BEA). Various years. National Income and Product Accounts (NIPA) Tables [online data tables]. Tables 6.2C, 6.2D, 6.3C, and 6.3D.

Bureau of Labor Statistics (BLS). Various years. Employment, Hours, and Earnings—National [database]. In Current Employment Statistics [public data series].

Clifford, Steven. 2017. The CEO Pay Machine: How It Trashes America and How to Stop It. New York: Penguin Random House.

Compustat. Various years. ExecuComp [commercial database].

Economic Policy Institute (EPI). 2024. “The Productivity–Pay Gap.” Economic Policy Institute website, August 2024.

Federal Reserve Bank of St. Louis. Various years. Federal Reserve Economic Data (FRED) [database].

Gould, Elise. 2020. “The Labor Market Continues to Improve in 2019 as Women Surpass Men in Payroll Employment, but Wage Growth Slows.” Working Economics Blog (Economic Policy Institute), January 10, 2020.

Gould, Elise, and Jori Kandra. 2023. “Wage Inequality Fell in 2022 Because Stock Market Declines Brought Down Pay of the Highest Earners” Working Economics Blog (Economic Policy Institute), December 11, 2023.

Kaplan, Steven N. 2012a. “Executive Compensation and Corporate Governance in the US: Perceptions, Facts, and Challenges.” Martin Feldstein Lecture, National Bureau of Economic Research. Filmed July 10, 2012, in Washington, D.C. 

Kaplan, Steven N. 2012b. “Executive Compensation and Corporate Governance in the US: Perceptions, Facts and Challenges.” National Bureau of Economic Research Working Paper no. 18395, September 2012.

Mishel, Lawrence and Jori Kandra. 2020. CEO Compensation Surged 14% in 2019 to $21.3 Million: CEOs Now Earn 320 Times as Much as a Typical Worker. Economic Policy Institute, August 2020.

Sabadish, Natalie, and Lawrence Mishel. 2013. “Methodology for Measuring CEO Compensation and the Ratio of CEO-to-Worker Compensation, 2012 Data Update.” Economic Policy Institute Working Paper no. 298, June 2013.

Securities and Exchange Commission (SEC). 2015. “SEC Adopts Rule for Pay Ratio Disclosure: Rule Implements Dodd-Frank Mandate While Providing Companies with Flexibility to Calculate Pay Ratio” (press release). August 5, 2015.

Key findings

• Growth of CEO compensation (1978–2022). Since CEO pay is mostly stock based, calculating it is not entirely straightforward because the value of stocks is continually changing. We use two measures to give a fuller picture: a backward-looking measure—realized compensation—and a forward-looking measure—granted compensation. Using the realized compensation measure, compensation of the top CEOs shot up 1,209.2% from 1978 to 2022 (adjusting for inflation). Top CEO compensation grew roughly 28.1% faster than stock market growth during this period and far eclipsed the slow 15.3% growth in a typical worker’s annual compensation. CEO granted compensation rose 1,046.9% from 1978 to 2022.
• Changes in the CEO-to-worker compensation ratio (1965–2022). Using the realized compensation measure, the CEO-to-worker compensation ratio reached 344-to-1 in 2022. This stands in stark contrast to the 21-to-1 ratio in 1965. Most importantly, over the last two decades the ratio has been far higher than at any point in the 1960s, 1970s, 1980s, or early 1990s. Using the CEO granted compensation measure, the CEO-to-worker compensation ratio fell to 221-to-1 in 2022, significantly lower than its peak of 396-to-1 in 2000 but still many times higher than the 45-to-1 ratio of 1989 or the 15-to-1 ratio of 1965.
• Changes in the composition of CEO compensation. The composition of CEO compensation is shifting away from the use of stock options and toward stock awards. In 2006, stock options accounted for just over 70% of stock-related pay in realized CEO compensation. But in 2022, stock options were only 34% with vested stock awards accounting for the rest. Stock-related pay (exercised stock options and vested stock awards) averaged $20.5 million in 2022 and accounted for 81.3% of average realized CEO compensation.
• Changes in the CEO-to-top-0.1% compensation ratio. CEO compensation has even been breaking away from that of other very highly paid workers. Over the last three decades, compensation grew far faster for CEOs than it did for the top 0.1% of wage earners (those earning more than 99.9% of wage earners). CEO compensation in 2021 (the latest year for which data on top 0.1% wage earners are available) was 7.68 times as high as wages of the top 0.1% of wage earners, a ratio 4.1 points greater than the 3.61-to-1 average CEO-to-top-0.1% ratio over the 1951–1979 period.
• Implications of the growth of the CEO-to-top-0.1% compensation ratio. The fact that CEO compensation has grown much faster than the pay of the top 0.1% of wage earners indicates that CEO compensation growth does not simply reflect a competitive race for skills (the “market for talent”) that would also increase the value of highly paid professionals more generally. Rather, the growing pay differential between CEOs and top 0.1% earners suggests the growth of substantial economic rents (income not related to a corresponding growth of productivity) in CEO compensation. CEO compensation does not appear to reflect the greater productivity of executives but their ability to extract concessions from corporate boards—a power that stems from dysfunctional systems of corporate governance in the United States. But because so much of CEOs’ income constitutes economic rent, there would be no adverse impact on the economy’s output or on employment if CEOs earned less or were taxed more.
• Growth of top 0.1% compensation (1979–2021). Even though CEO compensation grew much faster than the earnings of the top 0.1% of wage earners, that doesn’t mean the top 0.1% fared poorly. Quite the contrary. The inflation-adjusted annual earnings of the top 0.1% grew 465% from 1979 to 2021. CEO compensation, however, grew more than 2.5 times as fast!

Measuring CEO compensation

We focus on the average compensation of CEOs at the 350 largest publicly owned U.S. firms (those firms that sell stock on the open market) by revenue. Our source of data is the S&P Compustat ExecuComp database for the years 1992 to 2022 and survey data published by The Wall Street Journal for selected years back to 1965. We maintain the sample size of 350 firms each year when using the Compustat ExecuComp data.2

A note about the Compustat data

It is worth noting some complexity of the Compustat data at the outset. Compustat tracks data (including measures of CEO compensation) for all publicly traded firms in the United States across a range of years (we use it back to 1992 and find it reliable since that year). But public companies sometimes move out of the data universe of publicly traded firms. They might go private, go out of business entirely, or be bought by another firm. When a firm stops being public, it does not simply drop out of the sample from that point on; it is also removed from previous years’ samples.

Optimally, we would like the Compustat data to provide information on the largest 350 firms that were public in a given year. Instead, the data provide information on the largest 350 firms that were public in a given year and that continue to be public according to the most recent data. This explains why some of our data—even for years relatively far in the past—changes with each new iteration of this report.

Further, even the pre-1992 data that we use rely on a procedure that “backcasts” Compustat to pre-1992 data that originate from other sources. Therefore, even the pre-1992 data can change with each successive round of Compustat.

In practice, the degree of change to previous years’ data caused by this reshuffling of firms in the Compustat universe is quite small, but it is not zero.

Two ways of measuring CEO compensation

We use two measures of CEO compensation, one based on compensation as “realized” and the other based on compensation as “granted.” Both measures include the same measures of salary, bonuses, and long-term incentive payouts. The difference lies in how each measure treats stock awards and stock options, major components of CEO compensation that change value from when they are first provided, or granted, to when they are realized.

The realized measure of compensation includes the value of stock options when they are actually realized or exercised, capturing the change in value from when the options were granted to when the CEO invokes the options, usually after the stock price has risen and the options values have increased. The realized compensation measure also values stock awards at their value when vested (usually three years after being granted), capturing any change in the stock price as well as additional stock awards provided as part of a performance award.

The granted measure of compensation values stock options and restricted stock awards by their “fair value” when granted. This fair value must be estimated given a number of assumptions about the future path of stock prices, interest rates, and other variables. Compustat estimates of the fair value of options and stock awards as granted are derived from the Black-Scholes model. For details on the construction of these measures and benchmarking to other studies, see Sabadish and Mishel 2013.

In some sense, realized measures of pay are backward-looking, while granted measures are forward-looking. Realized measures of stock-related pay in 2022 are essentially measuring how much money CEOs were able to bring home based (largely) on the past year’s stock options and awards. Granted measures of stock-related pay in 2022 are essentially measuring estimates of how much new options and awards are likely to pay off in future years. Because neither measure perfectly maps onto a measure of how much a CEO “earned” in a single particular year, reporting both can be useful.

Analysis

Trends in CEO compensation growth

This section examines several decades of available data to identify historical trends in CEO compensation. Stock-related components have constituted a growing share of total CEO compensation over time. Lately, there has been a shift away from stock options to stock awards—a small sign that perhaps CEO labor markets are getting slightly less dysfunctional on the margins.

Composition of CEO compensation

Stock-related components of CEO compensation constitute a large and increasing share of total compensation. Realized stock awards and stock options made up 70.2% of total CEO compensation in 2006 ($15.1 million out of $21.6 million) and 81.3% of total compensation ($20.5 million out of $25.2 million) in 2022 (not shown in chart). The growth of these stock-related components from 2006 to 2022 explains over 100% of the total growth in CEO realized compensation over this period.3 Of the stock-related components of compensation, stock awards make up a growing share, while the share of stock options in CEO compensation packages has decreased over time.

There is a simple logic behind companies’ decisions to shift from stock options to stock awards in CEO compensation packages, as Clifford (2017) explains. With stock options, CEOs can make only gains: They realize a gain if their company’s stock price rises beyond the price of the initial options granted, and they lose nothing if the stock price falls. The fact that they have nothing to lose—but potentially a lot to gain—might lead options-holding CEOs to take excessive risks to bump up their company’s stock price to an unsustainable short-term high.

Stock awards, on the other hand, likely promote better long-term alignment of a CEO’s goals with those of shareholders. A stock award has a value when given or vested and can increase or decrease in value as the firm’s stock price changes. If stock awards have a lengthy vesting period of three to five years, then the CEO has an interest in lifting the firm’s stock price over that period while being mindful to avoid any implosion in the stock price—to maintain the value of what they have. In some sense, the shift from options to awards might represent a small glimmer of hope that CEO labor markets are getting a bit less dysfunctional (though there is obviously a long way to go).

CEO compensation growth in 2022

Realized CEO compensation (reported in Table 1) declined by 14.8%4 to $25.2 million from 2021 to 2022. This decline was overwhelmingly due to the reduced value of exercised stock options, a decline surely related to broad-based declines in stock prices in 2022.

The granted measure of CEO compensation, which values stock options granted in 2022 (not those exercised), also fell by 12.4%.

Long-term trends in CEO compensation

Table 1 also presents the longer-term trends in CEO compensation for selected years from 1965 to 2022.5 Our discussion of longer-term trends focuses mostly on the realized compensation measure of CEO compensation preferred in most economic analyses. In general, CEO compensation follows the movement of the stock market but tends to exceed even the largest stock market gains.

Table 1 allows us to compare CEO compensation with that of a typical worker by showing the average annual compensation (wages and benefits of a full-time, full-year worker) of private-sector production/nonsupervisory workers (a group covering more than 80% of payroll employment; see Gould 2020).

From 1992 onward, the table also identifies the average annual compensation of production/nonsupervisory workers in the key industries of the firms included in the sample. We take this compensation as a proxy for the pay of typical workers in these particular firms and use it to calculate the CEO-to-worker compensation ratio for each firm.

Table 1

Finally, the table shows inflation-adjusted changes in the stock market, as measured by the Dow Jones Industrial Average and the S&P 500 Index.

CEO compensation (our realized measure) has, in general, risen and fallen along with the S&P 500 Index over the last five and a half decades. But the period from 1965 to 1978 is an exception: Although the stock market fell by roughly half between 1965 and 1978, realized CEO compensation increased by 79.5%.

Typical worker compensation saw relatively strong growth over that period—strong relative to subsequent periods, not relative to CEO pay or the pay of other earners at the top of the wage distribution. Annual worker compensation grew by 20.5% from 1965 to 1978, about a fourth as fast as CEO compensation growth.

Realized CEO compensation grew strongly throughout the 1980s but exploded in the 1990s. It peaked at the end of the stock market bubble in 2000 at about $25.2 million—a 362% increase over just five years earlier in 1995 and a 1,211% increase over 1978. This latter increase exceeded even the growth of the booming stock market between 1978 and 2000 (513.99% for the S&P 500 and 439.98% for the Dow Jones). In stark contrast to both the stock market and CEO compensation, private-sector worker compensation increased just 0.76% from 1978 to 2000.

When the stock market bubble burst in the early 2000s, there was a substantial paring back of CEO compensation. By 2007, however, when the stock market had mostly recovered, realized CEO compensation reached $22.2 million, just $3 million below its 2000 level. However, granted CEO compensation remained down, at $16.8 million in 2007, a substantial $8.3 million fall from the 2000 level.

The stock market decline during the 2008 financial crisis also sent CEO compensation tumbling, as it had in the early 2000s, as realized CEO compensation dropped 46.3% from 2007 to 2009. After 2009, realized CEO compensation resumed an upward trajectory, growing 111.4% from 2009 to 2022 so that CEO compensation exceeded its previous level from 2007 by 13.6%.

To assess the role of CEO compensation in the overall increase in income and wage inequality of the last four decades, it is best to gauge growth since 1978.6 For the period from 1978 to 2022, realized CEO compensation increased 1,209.2%—almost 30% faster than stock market growth (depending on the market index used) and substantially faster than the 15.3% growth in the typical worker’s compensation over the same period. CEO granted compensation grew 1,046.9% over this period.

Trends in the CEO-to-worker compensation ratio

Table 1 also presents trends in the ratio of CEO-to-worker compensation, using both measures of CEO compensation. We compute this ratio, which illustrates the increased divergence between CEO and worker pay over time, in two steps:

• The first step is to construct, for each of the 350 largest U.S. firms, the ratio of the CEO’s compensation to the annual average compensation of production and nonsupervisory workers in the key industry of the firm (data on the pay of workers at individual firms are not available).7
• The second step is to average that ratio across all 350 firms. Note that trends before 1995 are based on the ratio of average top-company CEO pay to the compensation of economywide (not industry-specific) private-sector production/nonsupervisory workers.

The last two columns in Table 1 show the resulting ratio for both measures of CEO pay. The trends are depicted in Figure A.

Figure A

As Table 1 and Figure A show, using the realized measure of CEO compensation, CEOs of major U.S. companies earned 21 times as much as the typical worker in 1965. This ratio grew to 31-to-1 in 1978 and 60-to-1 by 1989. It surged in the 1990s, hitting 381-to-1 in 2000, at the end of the 1990s recovery and at the height of the stock market bubble.8

The fall in the stock market after 2000 reduced CEO stock-related pay, such as realized stock options, and caused CEO compensation to tumble in 2002 before beginning to rise again in 2003. Realized CEO compensation recovered to a level of 326 times worker pay by 2007, still below its 2000 level. The financial crisis of 2008 and accompanying stock market decline reduced CEO compensation between 2007 and 2009, and the CEO-to-worker compensation ratio fell in tandem.

Over the 2009–2022 period, another surge in realized CEO compensation brought the ratio to 344-to-1, above its 2007 level. Besides being higher than the value achieved in 2000 at the peak of a stock market bubble, it is, of course, far higher than it was in the 1960s, 1970s, 1980s, and the early 1990s.

The pattern using the granted measure of CEO compensation is similar. The CEO-to-worker pay ratio peaked in 2000, at 396-to-1, even higher than the ratio of 381-to-1 with the realized compensation measure. The fall from 2000 to 2007 was steeper than for the other measure, and the CEO-to-worker pay ratio hit 242-to-1 in 2007. The stock market decline during the financial crisis drove the ratio down to 181-to-1 in 2009. The growth in granted CEO compensation over the 2009–2022 period, at just 30.9%, was far less than for realized compensation, so the CEO-to-worker pay ratio recovered to only 229-to-1. This level is far lower than its peak in 2000 but still far greater than the 1995 ratio of 131-to-1, the 1989 ratio of 45-to-1, or the 1965 ratio of 15-to-1.

The extraordinarily high level of the CEO-to-worker compensation ratio reflects the strikingly different trajectory of CEO pay compared with typical worker pay over the past 40 years. On the one hand, there has been very little growth in the compensation of a typical worker since the late 1970s. It has grown just 15.3% over the 44 years from 1978 to 2022, despite a corresponding growth of net economywide productivity of 64.6% (EPI 2022). The 1,437% growth in realized CEO compensation from 1978 (there are no data for 1979) to 2021 far exceeded the growth in productivity, profits, or stock market values in that period.

CEO pay is excessive even relative to other extraordinarily privileged actors in the economy

This section highlights how out-of-line CEO pay is even compared with the most privileged workers in the U.S. economy—the top 0.1%. CEO compensation has grown a great deal since 1965, but so has the pay of other high-wage earners. To some analysts, this suggests that the dramatic rise in CEO compensation has been driven largely by the demand for the skills of CEOs and other highly paid professionals. In this interpretation, CEO compensation is being set by the market for “skills” or “talent,” not by managerial power or the ability of CEOs to extract economic rents (to claim income in excess of their contribution to actually producing).9 This explanation lies in contrast to that offered by Bebchuk and Fried (2004) and Clifford (2017) who claim that the long-term increase in CEO pay is a result of managerial power.

The “market for talent” argument is based on the premise that “it is other professionals, too,” not just CEOs, who are seeing a generous rise in pay. The most prominent example of this argument comes from Kaplan (2012a, 2012b). In the prestigious 2012 Martin Feldstein Lecture at the National Bureau of Economic Research, he claims:

Over the last 20 years, then, public company CEO pay relative to the top 0.1% has remained relatively constant or declined. These patterns are consistent with a competitive market for talent. They are less consistent with managerial power. Other top income groups, not subject to managerial power forces, have seen similar growth in pay. (Kaplan 2012a, 4)

In short, Kaplan is claiming that a stable ratio of CEO pay to top 0.1% pay indicates that market power is not operating uniquely in CEO pay markets. One implication of this is that if the CEO-to-top-0.1% pay ratio is in fact increasing, then the scope for unique exercise of market power in CEO labor markets is large.

We find that this argument that CEO compensation is being set by the generalized market for “skills” does not square with the available data. Bivens and Mishel (2013) address the larger issue of the role of CEO compensation in generating income gains at the very top and conclude that substantial rents are, in fact, embedded in executive pay. According to Bivens and Mishel (2013), CEO pay gains are not the result of a competitive market for talent but rather reflect the power of CEOs to extract concessions from corporate boards.

To reach this finding, we use Kaplan’s series (2012b) on CEO compensation (through 2010 and updated forward using CEO realized compensation) and compare it with the wages of the very highest wage earners in the top 0.1% (reflecting W-2 annual earnings, which include exercised stock options and vested stock awards). We use top wage earners rather than top 0.1% household incomes, as Kaplan did, in order to make the comparisons across earners.10 The wage benchmark seems the most appropriate because it avoids issues of changing household demographics (such as increases in the number of two-earner households over time) and limits the income to labor income. Our wage benchmark excludes capital income, which is included in household income measures.

Figure B compares CEO compensation to top 0.1% earnings ratios back to 1951. In 2021 (the last year available for the top 0.1% data series), this ratio was 7.68, meaning that CEOs made nearly 8 times as much in salary as even the most privileged 0.1% of workers in the economy. This 7.68 ratio in 2021 was about 4.1 points higher than the historical average of 3.61 over the 1951–1979 period. This is a large change, meaning that the relative pay of CEOs increased by an amount equal to the total annual wages of four of these very–high–wage earners.11

Figure B

The extremely rapid growth of CEO compensation compared with the earnings of the top 0.1% of wage earners does not mean that the top 0.1% fared poorly. In fact, the very highest earners—those in the top 0.1% of all earners—saw their annual earnings (including realized stock options and vested stock awards) grow fantastically, though far less than the compensation of the CEOs of large firms. Top 0.1% annual earnings grew a healthy 465% from 1979 to 2021, though that was just a small fraction of the 1,437% growth of realized CEO compensation achieved between 1978 and 2021 (strict comparability on the year 1979 is not available in the data).

If CEO pay growing far faster than the pay of other high earners is evidence of the presence of rents, as Kaplan suggests, one would conclude that today’s top executives are collecting substantial rents, claiming income far in excess of their contribution to producing it. This means that if CEOs were paid less, there would be no loss of productivity or output in the economy.

The large discrepancy between the pay of CEOs and other very-high-wage earners also casts doubt on the claim that CEOs are being paid these extraordinary amounts because of their special skills and the market for those skills. It is unlikely that the skills of CEOs of very large firms are so outsized and disconnected from the skills of other high earners that they propel CEOs past most of their cohort in the top one-tenth of 1%. For everyone else, the distribution of skills, as reflected in the overall wage distribution, tends to be much more continuous, so this discontinuity is evidence that factors beyond skills drive the compensation levels of CEOs.

The stock market and CEO pay

There is normally a tight relationship between overall stock prices and CEO compensation. Some commentators draw on this regularity to claim that CEOs are being paid for their performance since, in the commentators’ view, the goal of CEOs is to raise their companies’ stock prices.

However, the stock–CEO compensation relationship does not necessarily imply that CEOs are enjoying high and rising pay because their individual productivity is increasing (because they head larger firms, have adopted new technology, or for other reasons). CEO compensation often grows strongly when the overall stock market rises, and individual firms’ stock values are swept up in this wake. This is a marketwide phenomenon, not one based in the improved performance of individual firms.

Most CEO pay packages allow pay to rise whenever the firm’s stock value rises. In other words, CEOs can cash out stock options regardless of whether the rise in the firm’s stock value was exceptional relative to comparable firms in the same industry. Similarly, vested stock awards increase in value when the firm’s stock price rises in simple correspondence to a marketwide escalation of stock prices. If corporate taxes are reduced and profits rise accordingly, leading to higher stock prices, is it accurate to say that CEOs have made their firms perform better?

The connection between CEO pay and overall inequality

Some observers argue that exorbitant CEO compensation is merely a symbolic issue, with no real consequences for the vast majority of workers. On the contrary, the escalation of CEO compensation, and of executive compensation more generally, has likely helped fuel the wider growth of top 1% and top 0.1% incomes, contributing to widespread inequality.

Our data apply to the CEOs of the very largest firms. We presume that these CEOs set the pay standards followed by other executives—of the largest publicly owned firms, of smaller publicly owned firms, of privately owned firms, and of major nonprofit firms (hospitals, universities, charities, etc.). If so, then CEO compensation is indeed a nontrivial driver of top incomes.

High CEO pay reflects economic rents—income that CEOs can skim from the economy not by virtue of their contribution to economic output but by virtue of their powerful position. Clifford (2017) alludes to the fictional town in the radio program A Prairie Home Companion in describing the Lake Wobegon world of CEO compensation setting that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated. But, in fact, CEO compensation could be reduced across the board, and the economy would not suffer any loss of output.

Another implication of rising pay for CEOs and other executives is that it reflects income that would otherwise have accrued to others instead of being concentrated at the highest level. What these executives earned was not available for broader-based wage growth for other workers (Bivens and Mishel 2013). It is useful, in this context, to note that wages for the bottom 90% would be 25% higher today had wage inequality not increased between 1979 and 2021.12

Most of the rise in inequality took the form of redistributing wages away from the bottom 90%. This group’s share of total wage income fell from 69.8% in 1979 to 58.5% in 2021. Most of the loss experienced by the bottom 90% went to the top 1%, whose wage share doubled from 7.3% to 14.6% in these same years. And even among this gain going to the top 1%, most of it went to the top 0.1%, who saw their share of overall wage income more than triple from 1.6% to 5.9% between 1979 and 2021. In other words, the bottom 90% had 11.3% of total wage income taken from them between 1979 and 2021, and that just under two-thirds of this loss (7.3 of 11.3 percentage points) went to the top 1%, and almost 40% (or 4.3 of 11.3 percentage points) went to just the top 0.1%.

Policy recommendations: Reversing the trend

Several policy options could reverse the trend of excessive executive pay and broaden wage growth. Ideally, tax reforms would be paired with changes in corporate governance:

• Implementing higher marginal income tax rates at the very top would limit rent-seeking behavior and reduce the incentives for executives to push for such high pay.
• Another option is to set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation. Clifford (2017) recommends setting a cap on executive compensation and taxing companies on any amount over the cap, similar to the way baseball team payrolls are taxed when salaries exceed a cap. One key consideration in making policies like this work concerns “fissuring”—the practice of spinning off the lower–paid workers in a given firm and using contracted third-party service providers to replace these functions (often rehiring the exact same workers but now no longer as permanent employees of the old firm). Such fissuring would boost firm-specific measures of typical workers’ pay and reduce the CEO-to-worker pay ratio without changing any economic reality. The newly contracted workers would not necessarily see any higher pay, and the CEOs would not need to accept lower pay. This type of fissuring is endemic in the U.S. economy and is a policy barrier to many efforts to constrain specific firms’ behavior through incentives like this.

Baker, Bivens, and Schieder (2019) review policies that would restrain CEO compensation and explain how tax policy and corporate governance reform can work in tandem:

Tax policy that penalizes corporations for excess CEO-to-worker pay ratios can boost incentives for shareholders to restrain excess pay, [but] to boost the power of shareholders [to restrain pay], fundamental changes to corporate governance have to be made. One key example of such a fundamental change would be to provide worker representation on corporate boards.

Given the vital importance of changing shareholders’ ability to restrain pay (not just their incentive to do so), another policy that could potentially limit executive pay growth is greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

The CEOs examined in this report head large firms. These firms, almost by definition, enjoy a degree of market power that some studies suggest has grown in recent decades. It seems that CEOs and other executives may have been prime beneficiaries of these firms’ greater market power. Using the tools of antitrust enforcement and regulation would help to restrain these firms’ market power. This would not only promote economic efficiency and competition but might help restrain executive pay as well.

Acknowledgments

The authors thank the Stephen M. Silberstein Foundation for its generous support of this research. Steven Balsam has provided useful advice on data construction and interpretation over the years. He is an accounting professor at Temple University and author of Executive Compensation: An Introduction to Practice and Theory (2007) and Equity Compensation: Motivations and Implications (2013). Steven Clifford, author of The CEO Pay Machine: How It Trashes America and How to Stop It (2017), has also provided technical advice. Clifford served as CEO for King Broadcasting Company from 1987 to 1992 and National Mobile Television from 1992 to 2000 and has been a director of 13 public and private companies.

About the authors

Josh Bivens is the chief economist at the Economic Policy Institute. His areas of research include macroeconomics, inequality, social insurance, public investment, and the economics of globalization. Bivens has provided expert insight to a range of institutions and media, including formally testifying numerous times before committees of the U.S. Congress. He has a Ph.D. in economics from the New School for Social Research.

Jori Kandra is a research assistant at the Economic Policy Institute. In addition to the CEO pay series, she has worked on the State of Working America 2020 wages report and the domestic workers chartbook, among other EPI publications. She has a bachelor’s degree in economics from the University of Texas at Austin.

Notes

1. For the pay of the typical worker, we use average compensation (wages and salaries plus benefits) of a full-time, full-year production or nonsupervisory worker (a group that makes up about 80% of the private-sector workforce).

2. In earlier reports, our sample for each year was sometimes fewer than 350 firms because some of these large firms did not have the same CEO for most of or all of the year or the compensation data were not yet available. In order to not let changes in sample size affect annual trends, we now examine the top 350 firms with the largest revenues each year for which there are data.

3. Authors’ analysis of the Compustat ExecuComp data.

4. Note that while we report executive compensation in millions in the text, and we round numbers to the nearest thousand in Table 1, dollar and percent changes are calculated using unrounded data.

5. We choose which years to present in the table based in part on data availability. Where possible, we choose cyclical peaks (years of low unemployment).

6. A better comparison would be to the low-unemployment year of 1979, but those data are not available.

7. There are a limited number of firms, which existed only for certain years between 1992 and 1996, for which a North American Industry Classification System (NAICS) value is unassigned. This makes it impossible to identify the pay of the workers in the firm’s key industry. These firms are therefore not included in the calculation of the CEO-to-worker compensation ratio.

8. As noted earlier, it may seem counterintuitive that the two ratios for 2000 are different from each other when the average CEO compensation is the same. It is important to understand that (as described later in this report) we do not create the ratio from the averages; rather we construct a ratio for each firm and then average the ratios across firms.

9. The managerial power view asserts that CEOs have excessive, noncompetitive influence over the compensation packages they receive. Rent-seeking behavior is the practice of manipulating systems to obtain more than one’s fair share of wealth—that is, finding ways to increase one’s own gains without actually increasing the productive value one contributes to an organization or to the economy.

10. We thank Steve Kaplan for sharing his CEO compensation series with us (Kaplan 2012b). The series on the income of the top 0.1% of households that Kaplan used is no longer available. Moreover, as we discuss, the appropriate comparison is to other earners, not to households, which could have multiple earners and shifts in the number of earners over time.

11. A one-point rise in the ratio is the equivalent of the average CEO earning an additional amount equal to that of the average earnings of someone in the top 0.1%.

12. This follows from the fact that from 1979 to 2020, annual earnings for the bottom 90% rose by 28.2%, while the average growth across all earners was 48.6% (Mishel and Kandra 2021). That means that the bottom 90% would have seen their earnings grow 20.4 percentage points more over the 1979–2020 period if they had enjoyed average growth (i.e., no increase in inequality, 48.6 less 28.2).

References

Baker, Dean, Josh Bivens, and Jessica Schieder. 2019. Reining in CEO Compensation and Curbing the Rise of Inequality. Economic Policy Institute, June 2019.

Bebchuk, Lucian, and Jesse Fried. 2004. Pay Without Performance: The Unfulfilled Promise of Executive Remuneration. Cambridge, Mass.: Harvard Univ. Press.

Bivens, Josh, and Lawrence Mishel. 2013. “The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes.” Economic Policy Institute Working Paper no. 296, June 2013.

Bloomberg. 2018. “Where Have All the Public Companies Gone?” April 9, 2018.

Bureau of Economic Analysis (BEA). Various years. National Income and Product Accounts (NIPA) Tables [online data tables]. Tables 6.2C, 6.2D, 6.3C, and 6.3D.

Bureau of Labor Statistics (BLS). Various years. Employment, Hours, and Earnings—National [database]. In Current Employment Statistics [public data series].

Clifford, Steven. 2017. The CEO Pay Machine: How It Trashes America and How to Stop It. New York: Penguin Random House.

Compustat. Various years. ExecuComp [commercial database].

Economic Policy Institute (EPI). 2022. “The Productivity–Pay Gap.” Economic Policy Institute website, accessed August 29, 2022.

Federal Reserve Bank of St. Louis. Various years. Federal Reserve Economic Data (FRED) [database].

Gould, Elise. 2020. “The Labor Market Continues to Improve in 2019 as Women Surpass Men in Payroll Employment, but Wage Growth Slows.” Working Economics Blog (Economic Policy Institute), January 10, 2020.

Internal Revenue Service (IRS). 2019. “SOI Bulletin Historical Table 12: Number of Business Income Tax Returns, by Size of Business for Income Years, Tax Years 1990–2016, Expanded Version” (data table). Excel file downloadable at https://www.irs.gov/statistics/soi-tax-stats-historical-table-12.

Kaplan, Steven N. 2012a. “Executive Compensation and Corporate Governance in the US: Perceptions, Facts, and Challenges.” Martin Feldstein Lecture, National Bureau of Economic Research. Filmed July 10, 2012, in Washington, DC. Video, July 15, 2012.

Kaplan, Steven N. 2012b. “Executive Compensation and Corporate Governance in the US: Perceptions, Facts and Challenges.” National Bureau of Economic Research Working Paper no. 18395, September 2012.

Mishel, Lawrence, Josh Bivens, Elise Gould, and Heidi Shierholz. 2012. The State of Working America, 12th Edition. An Economic Policy Institute book. Ithaca, N.Y.: Cornell Univ. Press.

Mishel, Lawrence, and Jori Kandra. 2020. “Wages for the Top 1% Skyrocketed 160% Since 1979 While the Share of Wages for the Bottom 90% Shrunk.” Working Economics Blog (Economic Policy Institute), December 1, 2020.

Mishel, Lawrence, and Jori Kandra. 2021. “Preliminary Data Show CEO Pay Jumped Nearly 16% in 2020, While Average Worker Compensation Rose 1.8%.” Working Economics Blog (Economic Policy Institute), May 27, 2021.

Sabadish, Natalie, and Lawrence Mishel. 2013. “Methodology for Measuring CEO Compensation and the Ratio of CEO-to-Worker Compensation, 2012 Data Update.” Economic Policy Institute Working Paper no. 298, June 2013.

Securities and Exchange Commission (SEC). 2015. “SEC Adopts Rule for Pay Ratio Disclosure: Rule Implements Dodd-Frank Mandate While Providing Companies with Flexibility to Calculate Pay Ratio.” Press release no. 2015-160, August 5, 2015.

As we note in Just Action, African American household income is about 60% of white household income. That discrepancy is concerning in itself, but the wealth gap is much, much worse: African American household wealth is only 5% of white household wealth.

Government housing policy exacerbated the wealth gap

While many factors have contributed to the troubling disparity between the income and wealth gaps, one factor stands out: government housing policy in the early- to mid-twentieth century.

Policies that subsidized homeownership for white working- and middle-class households during that period allowed those families to buy homes. They accumulated wealth over decades as their homes appreciated. They then passed on that wealth to their children and grandchildren.

African American families were explicitly and unconstitutionally excluded from these programs. That made it harder—often impossible—for them to own homes and thus build wealth they could bequeath to subsequent generations.

For many African American families, the story stopped there. These families would have been able to afford a home if they had been permitted to purchase government-subsidized suburban homes the way white families had. But they were explicitly prohibited from purchasing those homes.

But even for the minority of Black families who managed to purchase homes, a wealth imbalance has persisted. These families were forced to purchase into less-well-resourced neighborhoods, and the values of homes in those neighborhoods didn’t increase the way home values in white suburban areas did. Therefore, though they were able to accumulate some wealth, they were not able to accumulate as much wealth as white families did.

We describe all this in Just Action. And we talk about ways to begin to redress homeownership disparities going forward. We describe programs that can help Black families into homeownership today, and we show how racial justice advocates and their community organizations can improve access to these initiatives, expand them, and increase opportunities for homeownership in communities where poverty isn’t concentrated.

But there is yet another part of the story we did not have space to address in the book. Families who had homes and land have too often lost them, because these properties were not passed down according to the original owners’ wishes. For these families, lack of intergenerational wealth lies not in the fact that they never had wealth. Rather, the wealth they had built was lost rather than fairly inherited by subsequent generations.

Probate and the ‘heirs property’ designation puts families at risk of losing their homes and wealth

When a property owner dies with a will or estate plan, the asset is distributed according to the owner’s wishes, with the named heirs becoming the legal owners of the property. This happens more often for white property owners than for African American property owners. While most American adults do not have a will, over half of white Americans do, compared with 24% of African Americans.

There are many reasons for this discrepancy. Families with fewer assets or lower-value homes—who are disproportionately African American—may think estate planning is not necessary and may be less aware of the benefits of having a will. Black households may also be less likely to trust the legal system. Finally, they may be deterred by the legal expenses associated with creating an estate plan.

When a person dies without a will or estate plan, their assets go into a process called probate. In this process, the court decides how much the assets are worth, pays off creditors, and then identifies heirs. Without a will to identify heirs, the court uses default rules that give children and grandchildren shares of the property (with complicated rules about who the heirs are if there are no surviving children or grandchildren). The asset is then designated an “heirs property.” This designation can be problematic.

There is no easy way to get a home out of being an heirs property once it is so designated. Most states require agreement by all heirs to change the ownership structure. This can be difficult or impossible, as there may be dozens of heirs spread across the country—or even the world—who may not know they are part-owners of a property. Locating them and informing them of their rights can be a challenge. At the very least, the process will require significant resources for fees, appraisals, and legal assistance.

Those living in a home their parents or grandparents owned may think that they are the presumptive owners when those older generations pass away. They may have lived at the property for years—even decades—and they may know or believe that their parent or grandparent wanted them to continue living there.

But without a will, the property is not legally transferred at the owner’s death to the persons occupying the home, so the occupants are not on the home’s title. Without a clear title, the occupants can’t qualify for any kind of loan that requires the property to be used as collateral, such as a home refinance mortgage. They are also unable to access many government-funded programs aimed at homeowners. For example, they are disqualified from disaster relief as well as the “homestead exemption,” which reduces property taxes for owner-occupied homes. Without this exemption, in areas where property values are increasing, the occupants of the home will be faced with rising property tax bills without being eligible for reductions. They may miss a payment. Local government then will likely place a lien on the home for the unpaid taxes. This can lead to foreclosure and the loss of a home that had been in the occupants’ family for generations.

Even if the occupants are able to keep up with taxes and forestall foreclosure, if the home is an heirs property, the occupants could still lose it under partition laws, which are in effect in 28 states. Under a partition law, when any heir requests to cash out their portion, no matter how small a fraction they own, it forces sale of the entire property. A distant cousin who owns a 5% share can force a sale without the agreement of the other heirs, including family members who live on the property and who may have lived there continuously for decades.

Investors and developers sometimes take advantage of this, finding those distant relatives, buying their shares, and then forcing the sale. Per the partition law, the sale doesn’t happen on the open market, but in a government auction where the winning bidder must pay in cash. Family members who want to retain ownership can rarely afford to buy the home at auction. Instead, investors or developers—sometimes the very same ones that demanded the sale to begin with—buy the whole property for a fraction of what it’s worth. The sale proceeds are then split among all the heirs according to their court-designated shares.

Since 2011, twenty-three states have reformed their laws to prevent partition sales by passing a Uniform Partition of Heirs Property Act, or “Uniform Act.” Under this law, when a part-owner requests the forced sale of an heirs property, the remaining heirs can buy out that part-owner’s fractional interest and retain ownership of the property. The Uniform Act also gives the court the option to divide the property among all heirs, when appropriate, and allow the sale of that part-owner’s piece. In instances when a forced sale is appropriate, such as for a single home that can’t be divided into parts, the act requires that the property be sold on the open market, which yields a higher sales price than an auction and allows buyers to secure financing for the purchase. (For more on the Uniform Act, see this interview with Professor Thomas Mitchell, who developed the model state statute, as well as his recent book.)

Seven of the 27 states that haven’t passed a Uniform Act are in the South. There, many who have lost their land in the partition process are descendants of people freed from slavery who acquired land to farm. Often it was land no one else wanted at the time. This land has since become more desirable, and developers have used partition laws to acquire these now-profitable properties.

In North Carolina, Carteret County has the highest rate of partition actions. The county’s population of 70,000 is 6% African American, but 42% of the partition cases in the last decade involved African American families. A ProPublica feature about heirs property loss in the South tells the story of Jessica Wiggins, whose family owned 18 acres in Bertie County, north of Carteret. The land contained woods, farmland, and her great-grandmother’s house and, until 2015, was an heirs property. That year a company named Aldonia Farms bought the interests of four of the property’s heirs, one of whom was Wiggins’s uncle, who suffered from dementia. Even though Aldonia Farms owned only 39% of the land, it forced the sale of the full 18 acres. The remaining heirs could do nothing to prevent it. The property was sold in a county auction and the family lost it all.

In Louisiana, which also still has partition laws on its books, Fred Wardlaw’s family owned a large parcel of land in the town of Castor. The parcel included creeks, farmland, and several of his extended family-members’ homes. As Wardlaw described to NPR’s Planet Money in 2021, the land had been in his family since his great-great-great grandfather, Jacob Loud, who was born enslaved in Virginia, acquired it through the Homestead Act in 1906. By Fred Wardlaw’s time, the land was collectively owned as an heirs property by members of five generations of his family.

In 1999, Wardlaw’s family learned that a partition action had been filed, forcing the sale of the whole property. Wardlaw investigated and learned that the action had been brought by the owner of a 4% share, which Wardlaw’s great-uncle had sold to two white men in 1980 for $100. The buyers had then sold it for $1,000 to another man, from whom it was later acquired by a timber company. Though the company owned only 4% of the land, Louisiana’s partition law did not allow the remaining heirs to buy out that share or sell that fraction of the land and keep the rest. As a result, Wardlaw’s family’s land was auctioned off. No one in the family had the cash to make a bid. The timber company that owned the 4% share bought the full 160 acres, with proceeds divided up between the heirs. All homes on the land were soon demolished.

(Louisiana has since changed its law so that a part-owner of an heirs property must own at least 20% of the property to force the sale, but it has not made more comprehensive reforms such as passing a Uniform Act.)

While estimates vary, NPR reports that half of Black-owned land in the U.S. is held as heirs property. More land is likely at risk of becoming so at the death of the property’s legal owner. This is a pressing issue in the South, where Black-owned land is more likely than in other parts of the country to have been acquired several generations ago by ancestors who did not leave wills and estate plans. But it also affects homeowners in other parts of the country. When an elderly homeowner in Philadelphia or Cleveland, for example, dies without a will, their home also becomes heirs property and can be forced into a partition sale by any part-owner of that home.

What can be done about this?

Organized residents can campaign for their states to pass a Uniform Act if they have not yet done so. Until that happens, they can advocate for local government assistance to heirs property owners, in order to stabilize communities and prevent loss of intergenerational wealth. Gainesville, Florida, has an Heirs’ Property Assistance Program that provides free legal assistance to owners of heirs property to obtain clear legal title to their homes. Recipients must meet income eligibility guidelines and their property must be in the city’s Community Reinvestment Area.

There are limits, however, to what can be done once the legal owner of a property has died without a will or estate plan, especially in states that have not reformed their partition laws. Therefore, it is also essential that we do what we can to prevent this from happening. We should provide support to make sure more property owners have an estate plan that specifies who should be the legal owner of the property upon their death so they can avoid these complications for their descendants.

Organizations that provide homeownership education and counseling should include estate planning in their curriculum. Financial institutions that require borrowers receiving homebuyer assistance to take these courses should also make having an estate plan a prerequisite for eligibility. Community organizations can pressure banks that offer targeted assistance to low-income and African American borrowers to provide free or low-cost estate planning resources for their grantees.

Community and legal aid organizations should also provide affordable estate planning services and do targeted outreach to educate and inform African American homeowners, especially seniors, about what is at stake. Grow Brooklyn, a nonprofit that provides homebuying and financial counseling to lower-income residents of New York City, provides free estate planning services. More should follow its lead. Community organizations and churches can help educate their members about the importance of estate planning and connect them with resources to do so.

If we are serious about closing the racial wealth gap, as we should be, we must address the ways African Americans have been denied wealth accumulation through homeownership and also the ways they may be at risk of wealth loss through heirs property rules. There is much we can do to make progress on both.

A slightly edited version of this blog post will be published on the “Just Action” Substack column of Leah Rothstein and Richard Rothstein. You can subscribe here. Richard Rothstein is an Economic Policy Institute distinguished fellow. 

This confluence of tragedies brought awareness of the Black American condition to a new generation. It also reinvigorated interest among academics and policymakers to finally do something about the problem of racial disparities (though activists and community organizers largely never lost interest in this).

This renewed awareness and interest in addressing racial disparities brought attention to arguably the only structural solution to persistent Black-white economic and social disparities, one that we have put off as a country for generations: reparations for slavery, Reconstruction, Jim Crow, and mass incarceration.

William Darity and Kirsten Mullen’s 2020 book, From Here to Equality: Reparations for Black Americans in the Twenty-First Century, outlines a clear strategy for implementing a reparations plan that would close the Black-white racial wealth gap in America—a foundational source of inequality across several social and economic domains. Darity and Mullen call for a federal reparations plan, on the grounds that the federal government is the only institution with the means to enact a transfer at a large enough scale to close the racial wealth gap, and is further the culpable party for allowing the institutional atrocities being rectified to exist in the first place.

Despite the raised awareness around the issue of reparations, the political will to enact a federal plan is currently lacking. H.R. 40, a bill to establish the Commission to Study and Develop Reparations Proposals for African Americans, is an important first step toward passing such a federal plan, but has yet to be brought to the House floor for a vote in its 32-year history.

In the absence of a federal plan, various states and localities have convened their own commissions and, in some cases, enacted their own reparations-style plans at the sub-federal level (i.e, below the federal level). California’s Reparations Task Force represents the largest state effort to investigate reparations thus far, but cities like Evanston, Illinois, St. Paul, Minnesota, and Providence, Rhode Island have all investigated and worked toward creating and implementing programs under the auspices of reparations.

As more states and localities attempt to design reparations plans, it is important that they keep certain principles in mind to ensure that the plans are effective as reparations. There is an important difference between policy that is simply “good” for Black people or people of color more broadly, and policy that is reparative.

Darity and Mullen identify three criteria for an effective federal reparations plan. The plan must include acknowledgement and apology for the harm committed; it must provide material redress for that harm; and it must bring closure through a mutual understanding between the beneficiaries (white Americans) and victims (Black Americans) of the oppressive systems that were implemented. In this post, I expand these criteria slightly to provide guidelines for states and localities that are attempting to create their own reparations-style plans in the absence of a federal effort.

In addition to acknowledgement and redress, I suggest that any sub-federal reparations plan that aims to be effective should:

• Specify what harms are being addressed and who will benefit.
• Stay within its capacity to provide redress for its harm—and avoid absolving the federal government from its responsibility.
• Commit to structural change designed to prevent future racial injustice.

Sub-federal reparations plans should acknowledge and apologize for the harm done

Acknowledgement and apology of the atrocities committed are essential to making any reparations plan legitimate, whether federal or sub-federal. Attempting to rectify harms committed at an institutional level without speaking directly to the history of those harms would be institutional gaslighting and likely lead to poorly designed policy. Acknowledgment and apology are also the preconditions for reconciliation, closure, and a future commitment to avoid causing harm in the future.

For example, if the cities of Wilmington, North Carolina, or Tulsa, Oklahoma, developed reparations programs centered around the massacres that took place in those cities in 1898 and 1921, respectively, those plans would need to include explicit acknowledgement of and apology for those massacres. An indirect compensation plan designed to disproportionately benefit Black residents would not suffice for legitimate reparations.

Sub-federal reparations plans should include material redress to the beneficiaries

Any plan for Black American reparations needs to include material redress. For example, if the harm being rectified is an historical exclusion from a local housing program, the descendants of those excluded should be the beneficiaries of a new housing program and be materially compensated for the lost potential wealth from having been excluded. Darity and Mullen are explicit that a federal reparations plan should include direct transfers of wealth from the federal government to the descendants of Black American slaves in an amount sufficient to compensate for both the unpaid labor and the lost appreciation of the fruits of that labor. The current racial wealth gap reflects the cumulative effect of Black Americans’ experience with economic racism over time, and closing that gap would be the way to redress that experience. Plans at the local and state level do not have the capacity to do this and should instead focus on addressing disparities that are within their scope.

Sub-federal reparations plans need to specify what harms are being addressed and who will benefit

For a plan to be considered reparative, it must explicitly outline the incident or historical precedent being addressed and the victims that are being compensated through the plan, in as much specificity as possible. A universal plan (that is, one that would benefit everyone) that would disproportionately benefit the descendants of those impacted by Jim Crow laws could not be considered reparative—though such policies may be worth pursuing on their own merits. The fact that a policy benefits the disadvantaged is not enough on its own to consider it a part of an agenda for racial justice, nor enough to make that policy reparative. The beneficiaries of reparations must be the descendants of the aggrieved parties—in the cases of American chattel slavery and Jim Crow, for example, those beneficiaries would be Black Americans. At the sub-federal level, reparations plans should specify the injustices committed by the state or locality, and redress should be provided to the victims of those specific policies and their descendants.

Sub-federal reparations plans should not attempt to absolve the federal government in its responsibility to provide redress for its harm

The idea that a sub-federal reparations plan should stay within an appropriate scope for its capacity is important for more reasons than just feasibility. It also ties into which parties are ultimately culpable for what institutional harms have been committed. For example, it would be inappropriate for a reparations plan at the city level to attempt to circumvent the federal government and provide reparations to its Black residents for chattel slavery, because the city government is not the culpable party for legalizing and supporting chattel slavery. Only the federal government can play that role.

State and local reparations plans should be grounded in an historical analysis of what institutional atrocities have taken place at that level. This similarly applies to the statistics being cited for developing state and local reparations plans. For example, citing the national racial wealth gap as part of the acknowledgement component of a city-level reparations plan would be inappropriate. Instead, that city should probe its own history and account for its own legacy of racial injustice.

Sub-federal reparations plans should include structural change and a commitment to ongoing vigilance against future racial injustice

In the spirit of the “closure” aspect of the criteria put forward by Darity and Mullen, I suggest that sub-federal reparations plans should also commit to making racial justice an ethic and practice, rather than a one-time occurrence. This would mean including elements of structural change—permanent or ongoing laws and institutions designed to prevent these atrocities from happening in the future or to stop these disparities from re-opening in unjust ways in the plan’s aftermath. These commitments would also serve to protect against the backlash to racial progress we have so often seen in American history—when reactionaries attempt to roll back policies designed to achieve some level of equity. If we have seen these periods of backlash in response to raised awareness of racial disparities and symbolic progress, we can expect them to follow successful reparations plans at any level. Policymakers should be aware and prepared for this.

Sub-federal reparations plans like the ones being explored in Providence and Evanston represent an important step forward in our collective recognition that Black Americans deserve redress for the harms inflicted by government institutions against them throughout this country’s history. However, it is important to reiterate that these plans are not and cannot be substitutes for a federal reparations effort. As Darity and Mullen point out in their work, the federal government is the culpable party for the racial wealth gap and the long-term national consequences of chattel slavery, Reconstruction, Jim Crow, and mass incarceration for Black Americans. The federal government is also the one with the requisite resources to meet the reparative challenge. But as long as state and local reparations plans are a part of the national conversation on achieving justice and equity for Black Americans, these guidelines should be a useful framework for making plans that are effective and, most importantly, reparative.

Summary: Conventional ideas for how to shrink racial disparities rely on methodological individualism—the notion that racial economic disparities can be eliminated by developing the “human capital” of disadvantaged groups (i.e., by “fixing Black people”). Stratification economics rejects that approach as misguided and doomed to failure. Rather, this explicitly moral research discipline recognizes that structural forces limiting opportunities for Black Americans were set up by white Americans to preserve their economic dominance. Following are five key takeaways from a stratification economics approach to eliminating racial inequities:

• Individual prejudices are not the key driver of racial economic inequities. These inequities are the direct, intentional result of the institutions, laws, and norms that were established to maintain the economic dominance of white Americans. In other words, the problem is the prejudices baked into the system because they benefit the dominant group.
• Reducing or eliminating racial disparities is not about changing the beliefs of members of the dominant group, nor is it about improving or developing members of disadvantaged groups. Rather it requires policy interventions that make structural changes to the way our economy functions. Left alone, the market will not close gaps.
• Policies that would close racial disparities in employment should be explored, and include a Federal Job Guarantee, shoring up collective bargaining rights, and strengthening the Equal Employment Opportunity Commission.
• Policies that would close racial disparities in wealth should be explored, and include direct reparations payments made by the government to the descendants of slaves coupled with the creation of new institutions dedicated to preventing the gap from reopening, and asset-building programs such as Baby Bonds and Guaranteed Retirement Accounts that are targeted to disproportionately benefit the poor.
• Changes made to the labor market and wealth disparities are preconditions to closing racial disparities in health. On top of those key structural changes, policymakers should ensure that high-quality affordable health care is available to those who need it by passing Medicare for All.

Introduction: The need for an alternative theoretical framework for understanding group-based disparities

Policy efforts stemming from misunderstanding the origins of racial disparities are doomed to failure. Unfortunately, conventional economic thinking has long misrepresented the origins of persistent disparities across the most important dimensions of social and economic well-being in the United States. To give a few examples of those disparities:

• Wealth: The typical Black family owns just one-eighth the wealth of the typical white family in the United States (Bhutta et al. 2020). Never in the country’s history have median Black families had even one-fifth the wealth of white families (Kent and Ricketts 2020). Americans tend underestimate the size of the wealth gap by 40 to 80% (Kraus, Onyeador, and Daumeyer 2019).
• Employment and wages: Black workers are consistently about twice as likely as white workers to be unemployed at any time in the business cycle (Ajilore 2020). Black and brown workers are also more likely than white workers to be in jobs with lower wages, worse or no benefits, and greater risk of bodily harm (Weller 2019; Seabury, Terp, and Boden 2017). Even when controlling for educational attainment, Black workers are paid less than white workers, and are less likely to find work in the first place (Wilson 2015).
• Health: Black Americans live shorter, sicker lives than white Americans, and are subject to higher rates of mortality. This includes infant and maternal mortality, both of which are more than twice as high for Black Americans as white Americans (CDC 2021a, 2021b).

Current policies related to these social and economic dimensions reflect a misunderstanding of what (if anything) can be done about persistent racial disparities. This misunderstanding is fostered by conventional economic thinking, which assumes that the source of racial disparities lies in the differently advantaged individuals themselves. As the thinking goes, wealthy, healthy, employed individuals (and groups of those individuals) are so because they are more capable than their poor, sick, unemployed counterparts. In this framework, known in academic circles as methodological individualism, the solution to Black-white disparities in the United States is to fix and improve Black people and Black culture. Thus, the conventional approaches to solving the problem of racial economic disparities focus on developing the human capital (skills and knowledge) of members of disadvantaged groups, either using education to improve individuals’ decision-making processes or shifting cultural habits to be less draining of wealth, health, and personal responsibility.

Stratification economics is an alternative theoretical framework used to understand the causes and consequences of group-based disparities and to develop solutions for them. It centers the role of hierarchy maintenance in the design of institutions, implementation of laws, and practice of norms. From the stratification perspective, group-based disparities emerge from the rational efforts of dominant groups to hold onto social and economic power.While the existence of social and economic disparities across race is clear, the interpretation of those disparities and what can be done about them is dependent on the framework used to organize the empirical data, as Trevon Logan notes in his essay, “Race and Ethnicity in Empirical Analysis: How Should We Interpret the Race Variable?” Choosing a framework that incorporates history and the full context of the problem at hand is just as important as making sure the data is accurate—numbers do not speak for themselves.

According to stratification economics, group-based disparities do not emerge because of irrational intergroup animosity, at least not as a rule. And discrimination is not merely nor functionally a matter of “taste.” Rather, group rationality is central to the process of stratification; that is, stratification takes place through the creation of institutions, laws, and norms that are beneficial at the group level for dominant groups, rather than at the level of individual actors only. In the United States this has meant that systems of racial and social inequity resist dismantling because they have been rational to maintain from the perspective of white Americans.

From the stratification perspective, reducing or eliminating racial disparities is not about improving or developing members of disadvantaged groups, nor is it about changing the beliefs of members of dominant groups. Stratification economists as a rule reject the assumption that group-based disparities stem from deficits on the part of individuals. The goal is not to reduce the number of racists, but to address and redress the effects of racist policies. The proximate reason these policies came into effect is because they created opportunities and shifted resources toward certain groups, not because the members of those groups held ill-will toward racial minority groups. Group-based disparities are rational to maintain from the perspective of dominant social identity groups. Recognizing that material benefits redound to members of dominant groups is key to understanding the problems stratification economists set out to solve.

Stratification economics stands in contrast to more conventional frameworks for understanding racial disparities in other key ways:

• Stratification economics takes group-based identity seriously as a driver of economic phenomena
• Stratification economics studies how group identity is used to secure resources and maintain social and economic hierarchy
• Stratification economics studies the implications of policies that affect whole communities and populations across history, not just individuals
• Stratification economics is upfront about its normative commitment to economic justice

Stratification economics takes group-based identity seriously as a driver of economic phenomena

Identity formation and identity-group-based rationality are fundamental to understanding economic behavior from the stratification economist’s perspective. Jim Stewart, one of the economists responsible for developing the field, saw it and its previous iteration, Black political economy, as linked with the scholarship done in Black/Africana Studies, which is deeply interested in how racial identity promotes some communities and constrains others. According to Stewart, “Group identities are treated as produced forms of individual and collective property with both income and wealth-generating characteristics and whose supply and demand are responsive to changes in production costs and budget constraints” (Stewart 2008). In other words, identity has real economic value that both individuals and groups put effort into protecting and maintaining.

Marxian political economists also take the position that identity is functional within capitalist economies but take a slightly different approach. While a traditional Marxian economist might say group-based identity and identity politics divide the working class (Reich 1974), a stratification economist emphasizes that group-based identity functions first to secure and improve relative group position for dominant groups and may also (in a convenient boon for capitalists) divide the working class. Stratification economics is not a “class-first” political economy but is class-conscious. As a space for collaboration between economists and those steeped in the Black Studies tradition, stratification economics has policy aims directed at improving the economic conditions of entire communities, rather than only individuals (and possibly communities by proxy). The field has implications for why Black farmers are so often on the losing end of land disputes (Mason 2008), why Hispanic farm workers are so heavily exploited (Costa and Martin 2020), why transportation policies consistently disadvantage Black and brown communities (Archer 2021), and much more. When identity is used as a tool for analysis rather than something to add complexity to a model after the fact, it becomes possible to provide better answers to questions about inequality.

Stratification economics studies how group identity is used to secure resources and maintain social and economic hierarchy

Group-based identities like race, alongside their associated phenotypical characteristics like skin shade, play a functional role in shaping economic inequality. According to Patrick Mason, another stratification economist, “race is a form of individual and group property, that is, a wealth-generating characteristic” (Darity, Mason, and Stewart 2006). When resources are scarce and it is possible to exclude others from partaking in those resources, identity can be used as a deciding factor in who gets access and who does not. This is why identity group membership holds value even within capitalist economies—identity is often directly related to who has access to the resources necessary to maintain power and hierarchy.

While a sophisticated understanding of capitalism tells us that the market may not necessarily equally reward equally productive workers (or equally productive capital) at an abstract level, stratification economics provides the rationale behind why labor market disparities take the shape they take in concrete terms. Unemployment and underemployment may be expected features of a competitive capitalist economy that does not safeguard against them, for example, but racial discrimination is the process by which exposure to these ills of capitalism are directed toward Black and brown workers at higher rates. The opposite point can be made for access to high wage employment with good benefits and promotion opportunities; stratification economics predicts that racial and gender identity will be used as tools to direct these more beneficial aspects of work away from women and Black and brown workers and toward men and white workers.

Stratification economics studies the implications of policies that affect whole communities and populations across history, not just individuals

Stratification economics focuses on the economic and social outcomes of populations and communities, rather than individuals. Communities are made up of individuals, of course, and there is a distribution of talents and wants throughout every community. Racial groups are not, however, so distinct from one another as to have systematically different distributions of talent between them. According to William “Sandy” Darity, who coined the field’s name, “For the stratification economist, claims about the defectiveness of a group with outcast/caste status are an ideological mask that absolves the social system and privileged groups from criticism for their role in perpetuating the condition of the dispossessed” (Darity 2005). Persistent disparities between identity groups emerge as the result of the different circumstances those groups face—at times as the result of government policy designed to perpetuate those disparities, but just as often due to the lack of redress of past injustices.

The history of the United States is marked by instances where the American government has implemented policies that have excluded Black and brown Americans from benefits, or otherwise distributed those benefits in ways that were much easier for white Americans to access (Rothstein 2017). Black and brown communities find themselves subject to various methods of monitoring and control that diminish the extent to which they can compete with white communities for scarce resources, from land to wealth to employment opportunities.

From the stratification economics perspective, the hyper-incarceration (Petach and Pena 2021) and hyper-unemployment of Black Americans can be viewed as population management strategies that reduce the bargaining power of all workers in an absolute sense but improve the bargaining power of non-Black workers in a relative sense. When Black Americans are kept disproportionately on the margins of the labor market, the unemployment rate is pushed higher, weakening the position of all workers. When they are removed from the labor market entirely, competition for scarce employment moves in favor of non-Black workers. This maintenance of relative group position is key to understanding how policies that undermine the socioeconomic conditions in which Black people live so consistently are allowed to go unchallenged; they both improve capitalists’ prospects for acquiring cheap labor and allow non-Black workers to maintain a larger share of the small economic pie afforded to the working class.

Stratification economics is upfront about its normative commitment to economic justice

One key feature separating stratification economics from conventional economic thinking is the willingness of practitioners of the former to engage in explicitly moral thinking about policy goals. Darrick Hamilton has been at the forefront of calling for economists to accept their moral responsibility in shaping policy for both good and ill, and to use their positions of privilege and influence to improve the lives of those disadvantaged by our current capitalist system. In his words, “Economists should do a better job of understanding political economy, including power and initial endowments, and should be more keenly focused on understanding and advocating for structures that truly lead to more equitable and fairer distributions” (Hamilton 2020). The pursuit of economic justice—redressing economic harm and creating a society in which people have what they need to live healthy and dignified lives—becomes a moral imperative in light of a clear understanding of the origins of economic inequality, particularly group-based inequality.

Human capabilities should be at the center of any economic policy agenda, rather than abstract concepts like the growth rate of GDP. From the stratification economists’ perspective, to sacrifice human flourishing for the sake of “the economy” is immoral. This is a different take from the idea that justice and equity-based policies will be “good for productivity”; in the human capabilities framework, the effects of economic policy on growth and productivity are secondary to their effects on the health and well-being of communities. Closing persistent disparities between groups that place limits on communities’ health and well-being is a moral imperative for stratification economists and the lodestar for good economic policy.

If maintaining racial disparities is rational for powerful groups, what can policy do about it?

One of the fundamental principles of stratification economics as it pertains to economic policy is that group-based disparities will not tend to diminish over time without policy intervention to make that happen. The market is not an equalizing force across groups, even in the face of human capital investment on the part of disadvantaged groups. To give a concrete example, Black heads of household tend to have lower income, lower wealth, and worse employment prospects than white heads of household at equivalent levels of education, and the typical college-educated Black family has less wealth than white families in which the head of household lacks a high school diploma (Darity et al. 2018). That these disparities have been persistent over time suggests the need for intervention if they are to be closed.

Structural changes to the way our economy functions are necessary in order to see persistent group-based disparities closed. Structural changes can be thought of as changes that are meant to be permanent, such as the establishment of new institutions and programs. The abolition of slavery, the creation of the Federal Reserve, and the establishment of the Social Security Administration all resulted in structural changes to the U.S. economy, for example. This is the scale on which policymakers need to think when considering ways to achieve equity from the perspective of stratification economics. While there are policies that fall short of this level of ambition that may disproportionately improve the lives of disadvantaged groups, their inadequacy can be measured by how little they do indeed close these gaps.

What policy recommendations does stratification economics have for disparities within the labor market?

Racial disparities in unemployment are traceable to occupational segregation (Bahn and Sanchez Cumming 2020) and discrimination (Holzer 2021) in the hiring process. The last 50 years of labor market data have shown us that the Black unemployment rate is consistently around double that of the white unemployment rate even under “normal” economic conditions, that Black workers find employment more slowly in the wake of an economic downturn, and that Black and brown workers are disproportionately employed in higher-risk, lower-pay work with less ability to negotiate the conditions of that work (Moore, Ghilarducci, and Webb 2019).

Unions have been a useful institution for improving the wages of women and people of color, to the extent that women and people of color have been allowed to participate in the formation of unions. Black workers are currently the most highly represented racial group in terms of union membership (BLS 2022); however, the states in the South where Black people live are the most hostile to unions (Green 2020).

Policies that structurally change the landscape for employment in the American economy are necessary if racial disparities in the labor market are to close. One such policy would be the introduction of a Federal Job Guarantee, whereby all adults who sought employment could be employed at a living wage through the government; this would eliminate involuntary unemployment and thus also racial unemployment disparities (Paul et al. 2018). Another such policy involves legislation dismantling the barriers to union organizing for workers, making union establishment a more democratic process within private workplaces, particularly in the South; this policy could give Black workers more latitude to negotiate for better working conditions (McNicholas, Poydock, and Rhinehart 2021). A third such policy entails strengthening the Equal Employment Opportunity Commission (Jameel 2019) and giving it the ability to impose heavier fines on firms known to discriminate, which could go some way toward disrupting stratification: If discrimination is made more costly, it becomes less rational as a means of securing group position.

What policy recommendations does stratification economics have for racial wealth disparities?

The racial wealth gap has historical roots that trace back to white Americans’ use and valuation of Black Africans as capital assets. The wealth generated through slavery was never redistributed among the former slaves who produced it. American history since has been marked by several missed opportunities to redress wealth disparities or provide wealth-building opportunities to Black and non-Black families equally. Since wealth is maintained largely through intergenerational transfers from parents to children and grandparents to grandchildren, the lack of a policy intervention in this case has meant that the absolute size of the wealth gap has continued to grow over time.

The most direct way to solve the racial wealth gap is through direct reparations payments made by the government to the descendants of slaves (Darity and Mullen 2020). On its own, however, this would not represent a structural change in the functioning of the economy; it would have to be paired with the creation of an institution (or institutions) dedicated to preventing the gap from reopening, and the disruption of stratification processes like mass incarceration that work to widen the wealth gap. The establishment of universal asset-building programs like Baby Bonds and Guaranteed Retirement Accounts would also go some way toward shifting the patterns of wealth-building in the United States to be less unequal, but would have to be well-targeted to disproportionately benefit the wealth-poor in order to close existing racial wealth gaps (Zewde 2020; Morrissey 2019).

What policy recommendations does stratification economics have for racial health disparities?

Racial health disparities emerge not because of inherent genetic or biological differences between racial groups, but because of differential exposure to health deteriorating events and circumstances as well as differential access to the resources necessary to mitigate negative health shocks. These differences in exposure and access are some of the effects of racial stratification in the United States. Discrimination, for example, itself has been found to contribute to worse health among racial minority groups (Borrell et al. 2006; Saadi and Ponce 2020). Racial health disparities are further solidified when they are allowed to persist over time into chronic health disparities. Environmental health hazards are often located in and closer to majority-minority communities as well, setting the foundation for differential exposure to pollutants such as lead (Nigra 2020).

Health care is often stratified as well—that is, rationed in ways that benefit members of dominant groups at the expense of others. Hospital quality is lower in majority-minority areas (Haider et al. 2012). The health concerns of Black women are taken less seriously by doctors, leading to stark disparities in both maternal and infant mortality (Chinn, Martin, and Redmond 2021).

A key structural change that would help to close racial health disparities would be the passage of Medicare for All, as it would bring high-quality affordable health care to all those who need it—particularly the Black and brown Americans who disproportionately lack it (Greenwood 2021). But a full eradication of racial health disparities would require changes made to the labor market and wealth disparities as preconditions. Community health is generated from the social and economic conditions in which the community lives. Solving the problems of inequitable health outcomes requires the historical, community-centered approach of stratification economics.

Additional reading and resources

Readers interested in delving deeper into the issues touched on in this chapter are encouraged to explore the following resources suggested by the author.

References

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The challenge for each of us is to understand how race shapes the American experience in countless intersecting, and sometimes contradictory, ways that can be hard to disentangle from the influence of other markers of identity or class, such as gender. Given those complexities, anti-racist economic research and policy often involves nuance, and is not easily boiled down into a simple checklist or a formulaic step-by-step guide. In fact, even the most well-meaning attempts to “check all the right boxes” can come across as superficial, performative, detached, or worst of all, counterproductive.

Guiding principles for anti-racist research, the ‘bodycam’ for racial economic injustice

Phrases like anti-racist, racial equity, and racial justice have quickly become part of the standard lexicon of people and institutions grappling with what it really means to be diverse, equitable, and inclusive. These concepts, however, are more than just “woke” or “progressive” jargon. They are standards for making and sustaining meaningful changes that help to dismantle social, economic, and political structures that perpetuate racial inequality. Here anti-racist research plays a key role. Rather than simply reciting the problem of racial inequity, anti-racist research questions its causes, exposes its consequences, and proposes ways to resolve it. Economists and other social scientists use data and statistical methods to model the processes of human decision-making and evaluate the effects of policy decisions. Those same tools also help to expose how race is used to systematically assign access, opportunity, power, and economic resources exclusive of individual skill, ability, effort, or merit.

The myth of race-neutral policy

Race-neutral policies—such as the drive to eliminate affirmative action—are harmful for achieving true racial equity and justice. Race-neutral policies fail to reverse the persistent and in some cases widening gaps between economic outcomes for Black and white Americans that are largely due to racism that is entrenched within the very fabric of our customs, laws, systems, and institutions. We must acknowledge and tackle the barriers posed by structural racism with race-conscious policies that target the intersection of race, class, and gender. Only race-conscious policies—policies that may disproportionately help communities of color—can dismantle the structural barriers to prosperity, safety, and equity for Black Americans.

Race and ethnicity in empirical analysis: How should we interpret the race variable?

In trying to understand racial and ethnic groups well enough to write policy that improves their economic outcomes, we have to have a clear understanding of what “race” means in statistical analysis and how the effect of race is measured. Race factors into economic outcomes in complicated ways that even more sophisticated statistical models can’t capture. We need to carefully interpret the effect or predictive power of race in measured disparities—in both descriptive and more sophisticated statistical models—because our assumptions affect how we design policy to address racial disparities.

Stratification economics: A moral policy approach for addressing persistent group-based disparities

Conventional ideas for how to shrink racial disparities rely on methodological individualism—the notion that racial economic disparities can be eliminated by developing the “human capital” of disadvantaged groups (i.e., by “fixing Black people”). Stratification economics rejects that approach as misguided and doomed to failure. Rather, this explicitly moral research discipline recognizes that structural forces limiting opportunities for Black Americans were set up by white Americans to preserve their economic dominance. Thus eliminating racial disparities requires policy interventions that make structural changes to the way our economy functions. Stratification economics seeks to reduce disparities to improve the health and well-being of communities first and foremost, not to improve productivity.

Serving, organizing, and empowering communities of color: Best practices for aligning research, advocacy, and activism

Improving economic opportunities and well-being in communities of color requires more than data and research. It requires grassroots groups that reject the transactional nature of electoral campaigns in favor of humility, deep listening, year-round engagement, and love. Only by questioning assumptions and organizing people around the issues they prioritize can you build trust and lasting change. For grassroots groups that want to truly advance policies that serve communities’ needs, there is much to take away from the lessons learned at Black Leaders Organizing Communities in Milwaukee.

Asian Americans and the anti-racist equity agenda: Contradictions and common ground

Asian Americans are a growing, predominantly progressive political force in the United States. On average, they favor a bigger government with more services and support affirmative action—and cite universal health care, progressive tax reforms, gun control, and the environment as top concerns. However, stereotypes about Asian Americans, as well as a small but vocal contingent of Asian Americans working against anti-racist policies (such as affirmative action) complicate efforts to sustain multiracial coalitions working toward racial justice.

Multidimensional identities of the Hispanic population in the United States

The Hispanic population in the United States is a large and diverse group of people with multidimensional identities. Existing survey instruments pose critical limits on research into this population and thus impact resulting policies. While the principle of racial and ethnic self-identification is important to respect and preserve, designing better surveys with more objective indicators of racial and ethnic background would provide a clearer picture of diverse subgroups and how they fare economically compared with one another and with other demographic groups. This is a critical step that would enable researchers to advance the collective understanding of the Hispanic population and thus allow policymakers to better address the challenges Hispanic people in the United States face.

The power of self-determination in building sustainable economies in Indian Country

Tribal governments are a significant part of the national economy, thanks to a policy shift toward tribal self-governance that ushered in an era of economic development, led by tribal gaming. Yet the economic and cultural shocks that deprived Native Americans of their livelihoods and social infrastructure for so long are still affecting Indian Country. To effectively address the economic and social challenges faced by Native Americans and their communities, policymakers and researchers must understand that tribal self-determination through self-governance is the only policy that produces positive results, and that further advances for Native Americans require tackling bureaucratic barriers such as tribes’ incomplete authority to put their lands to good and productive use, their inability to collect taxes to pay for government operations, and discriminatory higher costs for accessing capital.

Racial and ethnic disparities in the United States: An interactive chartbook

This interactive chartbook provides a statistical snapshot of race and ethnicity in the United States, depicting racial/ethnic disparities observed through population demographics; civic participation; labor market outcomes; income, poverty, and wealth; and health. The chartbook also highlights some notable intersections of gender with race and ethnicity, including educational attainment, labor force participation, life expectancy, and maternal mortality. The findings are bracing, as they show how much more work we need to do to address longstanding and persistent racial inequities.

]]> https://www.epi.org/event/the-system-who-rigged-it-how-we-fix-it-with-former-u-s-secretary-of-labor-robert-reich/ Wed, 13 May 2020 20:00:48 +0000 https://www.epi.org/?post_type=event&p=195352 Former U.S. Secretary of Labor Robert Reich discussed The System: Who Rigged It, How We Fix It.

In his new book, Reich, an Economic Policy Institute (EPI) founder, explores America’s power system that he says is designed to bail out corporations rather than people, even in times of crisis. Corporations and the wealthy few benefit from what he calls a socialism for the rich—in which they hold nearly all of the country’s economic and political power—while everyone else is left to endure the harsh realities of capitalism.

“The coronavirus has starkly revealed what most of us already knew,” he writes. “As power has shifted to large corporations, workers have been left to fend for themselves.”

“The system is rigged,” he adds. “But we can fix it.”

EPI President Thea Lee moderated the discussion about Reich’s book and what life will be like for workers after COVID-19, followed by a Q&A.

What: A book discussion and Q&A on The System: Who Rigged It, How We Fix It

When: Wednesday, May 13
4:00—5:00 p.m. ET / 1:00—2:00 p.m. PT

Where: Zoom webinar, Youtube live steam

Click on the video below to watch a recording of the live stream.

This report is a joint project of Policy Matters Ohio, the Iowa Policy Project, COWS, and EARN.