Is Wealth Inequality Corroding American Democracy?


Katherine Getchell

 Failures to limit the influence of money coupled with the widening gap between the wealthiest and poorest Americans threatens one of the core tenets of democracy: equality. 

The United States calls itself a democratic republic. The Merriam-Webster Dictionary definition for a republic is a government structure where “the supreme power lies in a body of citizens who are entitled to vote for representatives responsible to them.” By contrast, in a democracy,  “the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections.” 

Naturally, a democratic republic blends components of both systems, where the people have the power to vote directly on certain measures and also to choose representatives to legislate on their behalf. 

To be a democracy, power must rest in the hands of the people. But which people actually have the most power? Everyone has the ability to vote, but there is evidence to suggest that the wealth inequality in our country and the dependence of political success on funding create an opportunity for some individuals to influence our government with more than just their vote. 

The influence of money in American politics is not an emerging phenomenon, but the exponential growth of wealth inequality in the last three decades is unprecedented. 

According to DQYDJ, “the top 1% of households and nonprofit organizations held 31.2% of all net worth in the United States.” 

Howard Gold from the Chicago Booth Review goes on to highlight an even smaller portion of the country. “Just 16,000 families fall in the top 0.01 percent of US households, each with at least $111 million in net worth in 2012.”

On the other hand, the majority of Americans have almost no disposable income. 

“Unfortunately, 56% of Americans have $5,000 or less in savings. And a third have $1,000 or less. When the average American’s monthly expenses are $5,102, that’s not enough to cover an emergency.”

The Federal Election Commission, (FEC), has put laws into place with the intention of preventing this wealth inequality from corrupting equality in the political sphere. 

The FEC states that, in federal elections, individuals can donate $2,800 to a candidate committee. The same individual could donate $10,000 to a state party committee. The same individual could donate as much as $35,000 to a Party National committee and $106,500 per account per year to specific national party committee accounts. A National party committee can donate $5,000 to each candidate committee each election.

Furthermore, between the national party committee, state, district, or local party committees, there are unlimited transfers. A single individual can donate $5,000 to any Multicandidate PAC. That Multicandidate PAC can donate $5,000 to a candidate committee per election, $5,000 to another PAC each year, and $45,000 to certain national party committee accounts. 

This tangled web is just for one type of election, there is a whole different map of limits for each recipient-donor combination for presidential primaries and general elections. It’s difficult to follow where all the money is coming from and all the potential places it can go. 

In a category of their own, Super Political Action Committees (PACs) can accept unlimited donations from individuals, labor organizations, political committees, and corporations; their expenditures, when acting independently from campaigns, are also unlimited.

Due to the respective rulings in the supreme court cases Citizens United v FEC and Buckley v Valeo, corporations have the same rights to free speech as individuals and money is considered a form of free speech, and therefore cannot be restricted. These court cases set the stage for the 2020 election cycle where Super PACs in total spent more than two billion dollars

Billionaires, corporations, and nonprofits motivated to ensure certain policies pass can donate through each avenue on an individual level and then unlimited amounts to Super PACs of their choosing. 

All this is possible under legal campaign finance law. Illegal means by which money is poured into politics is a whole different discussion but there is reason to believe the FEC only identifies and prosecutes a fraction of the instances where these laws are actually bent or broken: 

Penalties levied by the FEC for campaign finance violations have plummeted to record lows even as political spending has soared.” 

People and organizations with the means to do so can carry influence into policy and politics regardless of the wants and needs of the majority of Americans.  

Hall and Wayman, in their study of wealth’s influence on American politics, seek to understand the extent of the influences that this structure lends to the richest citizens and organizations. Their investigation of the effect of donations on congressional committees demonstrates that substantial contributions to legislators influence which bills make it out to the voting floor. 

They explain that when, for example, a tax bill that has a measure for the reduction of capital gains or corporate tax rates is in committee, the largest donations from outside interest groups and individuals not only go to the loudest supporters of the bill. The money from donors in favor of the bill is also funneled to the biggest opponents of the bill — to incentivize those legislators to argue against it less vehemently.  

Their study exposes the high likelihood that some of the biggest public advocates for initiatives have taken money in exchange for not promoting the interests of their constituents. Another study by Martin Gilens and Benjamin Page from 2014 reinforces the claim that wealth directly influences policy. 

Gilens and Page write, “Economic elites and organized groups representing business interests have substantial independent impacts on U.S. gov policy while mass-based interest groups and average citizens have little or no independent influence.” 

Objectors to the conclusions reached in this study raise the point that the middle class and the rich agree on a lot of issues. Yet it is difficult to separate how much of that is actual accordance of priorities and ideologies and how much that is influenced by the fact that the richest people in the country have the power to shape the media the rest of us consume: “6 Corporations Control 90% Of The Media In America.” 

This objection is also centered on the middle class because there is significantly less agreement on policy direction between the least wealthy and the most wealthy income brackets. 

When lower-income Americans’ interests are in direct conflict with middle and upper class interests, the lower-income bracket loses 80 percent of the time: “These results suggest that the rich and middle are effective at blocking policies that the poor want.” 

An example of legislation that hasn’t seen any movement in recent years that would disproportionately benefit those with very little wealth is the minimum wage. According to PBS, “the current federal minimum wage sits at $7.25 an hour with most states passing their minimum wage higher since it has not changed since 2009.“

This is despite the fact that two-thirds of Americans (67 percent) support raising the minimum wage to $15 an hour. This is not just a debate that has recently gained traction, a federal minimum wage increase has been a part of the Democratic party’s platform before. 

There are pros and cons to raising the minimum wage, the Congressional Budget Office projected that: “On the positive, the number of people living in poverty would fall by about 900,000 once the $15 wage is fully in place in 2025.”  

The trade-off would likely be an increase in the unemployment rate as “the number of people working would decline by about 1.4 million.” 

Michael Saltsman from the Employment Policies Institute argued that even very profitable companies could not afford a minimum wage increase. 

“Wal-Mart’s actual profit, according to SEC filings, was only 3 percent of its total revenue, [$482 billion in total revenue in the fiscal year 2016]. That works out to roughly $6,400 dollars in profit for each of the company’s 2.3 million employees — a profit that could be wiped out with a $15 minimum wage.”

Three percent of $482 billion is still $14.46 billion. That is a lot of profit. Saltsman argues here that if the minimum wage were to increase that profit would be obliterated. In that sense, Walmart has a lot to gain from the federal minimum wage staying at $7.25 per hour. 

This power of money is not only seen in what policy is passed but also in who wins elections. 

The Washington Post reported in 2012 that in congressional races “Candidates who out-fundraised their opponents were nine times more likely to win elections.”

 Maggie Koerth of Five Thirty Eight identifies this as a common trend seen throughout the past two decades. 

“How strong is the association between campaign spending and political success? For House seats, more than 90 percent of candidates who spend the most win. From 2000 through 2016, there was only one election cycle where that wasn’t true: 2010. In that election, 86 percent of the top spenders won,” Koerth said.

The evidence points to more funding yielding results on measures the general public votes on directly as well. 

Proposition 22 was on the ballot last fall in California, it sought to “define app-based transportation (rideshare) and delivery drivers as independent contractors and adopt labor and wage policies specific to app-based drivers and companies.” 

The Yes on Prop 22 coalition received $181.4 million from Lyft, Uber, DoorDash, InstaCart, and Postmates.  

The opposition to the prop had a fraction of that to spend, with the No on Prop 22 raising around “$19 million, coming mainly from labor organizations.”

Ultimately, Proposition 22 passed. 

The evidence presented here points to the conclusion that federal campaign finance laws do not effectively limit the influence of money in American politics. The probability that propositions pass, candidates take office, bills leave committee and certain policies are implemented hinge on, to some degree, who donates the most money to whom. 

When wealth cannot be separated from politics, wealth inequality translates to political inequality. 

A small group of individuals and organizations have upwards of a hundred million dollars to commit to ideological conflicts and to promote their own interests while a large portion of Americans have less than $10,000 in savings. 

Every person does not have an equal say in our governance when a small fraction of the citizens can shape policy through donations that the rest of the country cannot match. Which raises the question: is equality an integral part of democracy? If it is — do we really live in a democratic republic?

Photo by Karolina Grabowska from Pexels.