February 23, 2021

At Banking Hearing, Fed Chair Powell Agrees with Senator Warren that Inequality Stunts Our Economic Growth

Video of Hearing Exchange (Youtube)

Washington, DC - In a Senate Banking Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) questioned Federal Reserve Chairman Jerome Powell on the effects of our country's extreme wealth inequality. In response to Senator Warren, Chairman Powell agreed that inequality weighs our economy down and stunts our economic growth. 

To address extreme wealth inequality, level the playing field, and help build an economy that works for everyone, Senator Warren has announced plans to introduce legislation to implement a wealth tax on fortunes over $50 million. This reflects her 2020 campaign proposal to impose a two cent tax on every dollar of individual wealth over $50 million, with an additional surtax on every dollar of wealth over $1 billion.

U.S. Senate Committee on Banking, Housing and Urban Affairs
Tuesday, February 23, 2021

Senator Warren: Thank you, Mr. Chairman. So, our economy is suffering through a K-shaped recovery where the wealthy are doing better and better while working people are doing worse and worse.

And Chair Powell, you've been pretty vocal about inequality over the past few years. 

You've noted -- I think I've got a quote here from you -- that it's "been a growing issue in our country and in our economy for four decades." You've talked a lot about how inequality undermines opportunity and mobility. And you've described it as something that holds our economy back. So, I take it from these comments that you believe that inequality weighs our economy down and stunts economic growth. Is that a fair statement?

Chairman Jerome Powell: Yes. It is.

Senator Warren: Good. And I agree with you. And the Fed's own data spell out the problem. I think you were just talking about it. You know, the top 1% of families last year received 20% of all the income in this country. And you think that's not good for our economic growth overall. Is that fair?

Chairman Powell: Well, I would say that the stagnation of incomes in the lower income area and also the low mobility that we've seen emerge -- those to me are the two-- the two most important things that I focus on when I talk about inequality.

Senator Warren: Right. But--

Chairman Powell: The stagnation of incomes and low mobility.

Senator Warren: Right. But we're talking here about income inequality-how much people earn each year to be able pay the rent and to be able to put food on the table.

But inequality also shows up in wealth, which is what families build over time-money in the bank, a home, stock. Wealth inequality is even more extreme in our nation than income inequality. While the top 1% of families-a tiny slice-got 20% of all the income earned in the U.S. last year, the top 1% held 33% of the total wealth in this nation. 

And now this pandemic is making inequality even worse. Unemployment, as you just noted, is now at about 20%, for the bottom quartile in this country, meaning that there are a lot of folks out there who are making choices about keeping the heat on or putting the food on the table. Meanwhile, the wealth of America's 660 billionaires increased by $1.1 trillion over this past year.

Inequality is felt in another way: it's felt in how people pay taxes. The 99% in America pay, on average, about 7.2% of their total wealth in taxes in a given year. But the top 1/10th of 1% pay only about 3.2%-that's less than half as much. Chair Powell, does it increase inequality when the wealthiest Americans pay total taxes at less than half the rate of nearly all other American families?

Chairman Powell: These are-- you're getting farther and farther from the, you know, the kinds of inequality that we focus on. And frankly, the ones we can do anything about with our tools. We can't affect wealth inequality certainly in the short term. We can affect indirectly income inequality by doing what we can to support job creation at the lower end of the market, so I leave to you those are really fiscal policy issues that I wouldn't-- can't really link those to our  mandate. That's all. 

Senator Warren: I appreciate that you're trying to move sideways on this, but you have pointed out that inequality is a problem in our country that it holds back mobility, that it holds back opportunities. And I'm simply pointing out that inequality is felt not just in income, it's also felt in wealth even more so and that our tax structure makes that inequality worse over time. You know, extreme wealth inequality undermines our economy -- as you have said. It undermines justice. It undermines our democracy. And our tax code focuses almost entirely on income and lets most of the wealth that the ultra-rich families have accumulated just slip right on through. That just seems to me not right.

You know, it's time for a wealth tax in America--a 2-cent tax on fortunes worth more than $50 million. If your fortune is over a billion, pay a few cents more.

This wealth tax will let us address the inequality that you have been very worried about as Chair of the Federal Reserve. It's how we have a chance to level the playing field and build an economy that works for everyone. 

So, thank you for being here, Mr. Chairman. And thank you, Chairman Brown.