Legal Milestones That Fight Income Inequality

Income inequality in the U.S. is unusually high for a developed economy—and it is rising. The income gap, measured by the Gini coefficient, has increased for decades as lower- and middle-class incomes have grown more slowly than upper-tier incomes, concentrating wealth upward. A report from the Economic Policy Institute, for instance, says that typical chief executive officer (CEO) compensation grew by 1,007.5% from 1978 to 2018. In that time, the income of the typical worker grew by 11.9%. The Congressional Budget Office projects that income inequality will be higher for 2021.

Ultimately, inequality is connected to many complicated, cumulative factors, and solutions are not easy. Some historians have even argued that there are no tolerable historical precedents for solving high levels of economic inequality within a society. Stanford professor Walter Scheidel, for example, suggested that only calamities have historically “solved” mass inequality. In his 2018 book The Great Leveler, Scheidel identifies four: war, revolution, state collapse, and deadly pandemics. 

However, other historians are less pessimistic. They argue that the current rising levels of inequality are not inescapable because policy has the power to change inequality. Nobel Prize-winning economist Joseph Stiglitz takes this view, and he commented in a 2018 article that the rising levels of inequality in America are “a matter of choice: a consequence of our policies, laws, and regulations.”

At numerous times during its history, America has attempted to address income inequality through policy, law, and court decisions. These efforts have tried to promote equal pay, prevent discrimination, and deal with other types of bias that foster inequality. They may also provide a roadmap for future attempts to fix income inequality.

Income inequality, in this article, refers to not just a discrepancy in earned wages but also to the broader disparity in wealth earned from all sources, including, rent, gifts, pensions, and investments. Both wage inequality and wealth inequality, which are connected, have risen dramatically over the past few decades.

The 18th Century

Heather Cox Richardson, a professor of history at Boston College, argues in her book How the South Won the Civil War that the “great paradox” at the heart of American democracy is that it relies on inequality, preserved over the history of the country by systemic oppression. The stirring phrase “all men are created equal,” Richardson writes, relied on racial, gender, and class inequality. The concept was intended only to be narrowly applied, and many of the freedoms prized by the men who founded the country relied upon slavery, prejudice against Native Americans, and other forms of repression.

In fact, income inequality is older than the country itself. In a podcast with NPR, Princeton University historian Wendy Warren, author of New England Bound, points out that enslavement of Africans and Native Americans provided early colonists with a cheap source of labor, which they used as a tool to generate income and grow wealth. The practice of chattel slavery would not end until the country had existed for nearly a century. The attempts to redress income inequality, therefore, first required the ability of people to earn an income.

The 19th Century

Laws that reverse or undo discriminatory laws represent the first steps to establishing legal milestones that affect income inequality. Although the U.S. Constitution did not explicitly mention slavery until the Civil War amendments stopped the practice, legal institutions up to that point preserved slavery and other racist and sexist laws. If inequality is partly fueled by the preservation of these systems, then it is vital to begin by acknowledging this, in part because the wealth that this generated was significant. By the Civil War, the market value of slaves equaled roughly half of the South’s wealth. Legal statutes from early in U.S. history also denied basic property, contract, and human rights to non-slave minorities, and excluded women and minorities from political participation.

The Civil War amendments—the 13th, 14th, and 15th—ended slavery and promised citizenship and voting rights to Black males (women would obtain the right to vote in 1919 with the passage of the 19th amendment). The period following the Civil War, Reconstruction (1866-1877), included many promises to encourage wealth creation among the newly enfranchised Blacks.

The famous promise of “40 acres and a mule,” which has been described by historian Eric Foner as “a transformation of Southern society more radical even than the end of slavery”—although it was never fully realized and later overturned—traces back to this period. The 40-acres promise (but not the mule), as Henry Louis Gates Jr. has written, traces back to Union Gen. William T. Sherman’s Special Field Order No. 15, issued on Jan. 16, 1865. It was the result of a meeting a few days earlier with Black ministers who wanted a means of securing a living, although radical Republicans and abolitionists including Charles Sumner and Thaddeus Stevens had also been calling for land redistribution.

However, the Compromise of 1877—a post-election deal between supporters of Republican presidential candidate Rutherford Hayes and Southern Democrats (which made Hayes president)—ended Reconstruction and placed power back in the hands of former slavemasters. That, together with the predominance of White supremacy, stalled out income and wealth gains for minorities, reversing them significantly.

The 20th Century

Broadly speaking, the story of the 20th century is the development of a host of government policies intended to diminish discrimination and, relatedly, income inequality.

In the early 1900s, income inequality continued to grow as a result of the political compromises mentioned above and new industrial practices that cropped up during the Gilded Age. The latter development left minority workers with an inability to access capital and created a new class of factory workers that moved to the city and became almost entirely reliant on factory bosses for their livelihood. By 1900, a vast percentage of capital was concentrated in the hands of a few monopolies. The extreme violent destruction of the wealth created by minorities, such as the massacre on “Black Wall Street” in the Greenwood District of Tulsa, Oklahoma, also eroded progress.

As the century continued, however, legal policies and political developments that produced further legal changes began to establish a framework for future work against income inequality.

Antitrust Legislation

Antitrust policies, such as the Sherman Antitrust Act, bolstered by the presidencies of Theodore Roosevelt and William Howard Taft—and later acts, such as the 1914 Clayton Antitrust Act under President Woodrow Wilson—began to reduce income inequality. Nevertheless, income inequality remained high until the Great Depression.

The New Deal

In the years after the financial losses Americans suffered during the Great Depression, inequality was less stark and, by some accounts, narrowing. The New Deal era, which started in 1933 as an emergency response to the uncertainty of the Great Depression, had a major impact on employment opportunities and was a crucial development period for the American social safety net.

This period saw the development of Social Security and the minimum wage and an increase in federal support for organized labor, which “secured a floor for working-class income.” However, help was not delivered equally. Members of minority populations were denied equal access to these programs through discriminatory practices, such as redlining and restrictive covenants, fueling the racial wealth gap.

World War II

The period of the 1940s is characterized as the “Great Compression,” a time when wage inequality decreased. Demand for low-skilled and moderately skilled workers led to an increase in income for them after the war. Meanwhile, top wages were flat before World War II, and they fell significantly during the war. The economists Thomas Piketty and Emmanuel Saez have said that this was likely because of “steep progressive taxation.”

Post-World War II

In the 1950s and 1960s, social movements such as second-wave feminism and the civil rights movement attempted to tackle gender and racial discrimination. Meanwhile, taxes and regulation of speculative finance kept top wages in check. Public investments resulted in the development of a robust infrastructure across a number of areas, including the interstate highway system, housing projects, access to higher education, and mortgages. It’s crucial to note, however, that many projects, in the guise of “urban renewal,” destroyed existing neighborhoods in minority communities, reducing the wealth and potential wealth of those residents.

At the same time, the United States government created policies to limit local segregation. In 1954’s Brown v. Board of Education, the court reversed its 1896 Plessy v. Ferguson decision, which allowed racially segregated schools, thus establishing the principle that separate is inherently unequal, a major legal and civil rights milestone.

The Civil Rights Era

Under the Lyndon Johnson administration, the United States developed the Office of Civil Rights, which enforced many laws aimed at eliminating discrimination. Title VI of the Civil Rights Act of 1964, for instance, prohibits discrimination on the basis of race, color, religion, or natural origin in programs that receive federal assistance. By and large, this agency’s actions also try to eliminate income inequality across the United States. 

Later expansions, such as the Medicare Act of 1965, similarly increased elderly persons’ access to healthcare by establishing a government-run insurance program for them. The Medicaid Act of 1965 did the same for those below the poverty threshold. By expanding access to healthcare for these privileged groups, Medicare and Medicaid ultimately aimed to reduce inequality.

The broader Civil Rights Act similarly made great strides at eliminating income inequality more directly. Title VI of the Civil Rights Act of 1964, for instance, scrapped discrimination due to race, color, or national origin for programs that get federal assistance, which covers a large portion of educational institutions in the U.S. Nondiscrimination requirements in this legislation touch on a wide sphere of educational activity, such as admissions, financial aid, recruitment, classroom assignments, and grading. And Title VII prohibits discrimination in employment based on race, color, religion, sex, and national origin.

Just as important was the Equal Pay Act of 1963, which made it illegal to have discriminatory pay rates based on gender. However, unlike the laws that ban wage discrimination because of race, color, religion, sex, national origin, age, or disability—or because of disabilities, such as Title VII, the Age Discrimination in Employment Act, and the Americans With Disabilities Act—the job content for the wages compared have to be “substantially equal.”

The Fair Housing Act of 1968—part of the civil rights legislation signed by President Lyndon B. Johnson after the assassination of Martin Luther King Jr.—led to the creation of the Office of Fair Housing and Equal Opportunity. This legislation prevented discrimination in most housing-related activities, including renting, buying, and mortgage lending. By increasing minorities’ access to housing across the United States, this set up laws that provided a platform to fight income inequality.

The 1970s

Education is another area with a deep connection to income in which American law has attempted to prevent discrimination and secure equal access. Under the Nixon administration, for instance, Title IX of the Education Amendments of 1972 banned sex-based discrimination in education programs and programs that received federal assistance. Section 504 of the Rehabilitation Act of 1973 banned discrimination in public elementary and middle schools, among other places, against people with disabilities. Much later, Title II of the Americans With Disabilities Act of 1990 outlawed discrimination in other educational forums, such as universities.

In contrast, the Equal Rights Amendment represents a missed opportunity for a milestone. The amendment was seen as the next logical step for enshrining equal rights for women after they won the right to vote. Versions of the bill had been introduced in Congress since it was initially drafted in 1923, but the legislature didn’t pass it until 1972. The bill wrote equality under the law for both sexes into the Constitution and gave Congress the power to enforce it. Conservative activists led by the lawyer Phyllis Schlafly argued it would lead to things such as gender-neutral bathrooms and same-sex marriage. Because the amendment contained a deadline for passage and was not ratified by the necessary number of states by that deadline, it failed. There has been some renewed interest in the bill in recent years amid the questioning of the constitutionality of the deadline.

The 1974 Equal Credit Opportunity Act is vital to ensuring access to credit. The act makes it illegal for creditors to discriminate and also requires them to give applicants, should they request it, the reasons that their credit was denied.

The 1980s and 1990s

Other than the Americans with Disabilities Act, the end of the 20th century did little to reduce income inequality. The trend in these later decades, according to the aforementioned work of Piketty and Saez, was the opposite of the trend seen in the Great Compression.

Global competition and less union membership left lower- and moderate-skilled workers less well off. In later decades, top marginal tax rates plummeted, and top income soared, especially floated by executive pay. Piketty and Saez emphasize that social norms play a role in explaining these trends.

The 21st century

The 21st century has continued to see bitter fights over political participation, access to opportunities, and other areas broadly connected to income inequality.

In particular, the rights of LGBTQ+ people have yet to be federally protected, though some notable progress has occurred. In Obergefell v. Hodges, the 2015 U.S. Supreme Court granted marriage equality to LGBTQ+ people, giving them access to the “constellation of benefits that the States have linked to marriage,” such as tax breaks, inheritance, and other forms of recognition. The Supreme Court’s 2020 decision in Bostock v. Clayton County also expanded the aforementioned Title VII of the Civil Rights Act to include protection against discrimination based on sexual orientation and gender.

Other court decisions have brought into question the methods used in the 20th century to create equality. In recent decades court cases, such as Gratz v. Bollinger and Adarand Constructors v. Peña, have placed limits on the scope of affirmative action programs.

By contrast, other laws have attempted to pave the way for bringing complaints about discrimination. When it is difficult to bring complaints about discriminatory practices, the argument goes, legal codes and court decisions have a limited impact on the ground. The Lilly Ledbetter Fair Pay Act of 2009 was legislation that threw out a court ruling that restricted when complaints could be filed, Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618 (2007). The act opened up the ability of people to file discrimination complaints and pursue opportunities.

The first two decades of the 21st century have seen leaps in income inequality, mostly brought on by slow and uneven recoveries to the 2008 financial crisis and the COVID-19 pandemic, which has affected lower-income and other disadvantaged groups more severely.

Reparations as a Remedy

The milestones described above are not an exhaustive list of all the attempts to address inequality in the U.S. Another approach that has gathered interest in recent years is reparations—payments and other steps taken to compensate victims for lost wages, theft, and other forms of harm that have undermined, among other things, the ability to build wealth. As a governmental policy, reparations are a serious effort to undo past harms that have had spillover effects, a lingering influence that fuels aspects of structural inequality. The U.S. has offered reparations at several points in its history.

Attempts at reconciliation for the Tuskegee experiments—a 40-year Public Health Service study beginning in 1932 that failed to receive informed consent from or adequately treat its subjects and lied to them about their treatment process—included lifetime medical benefits and burial services through the Tuskegee Health Benefit Program and an out-of-court settlement.

In 1946, Congress created the Indian Claims Commission to hear Native American tribal claims over stolen land. That body awarded $36 million to 13 groups in 1968. The Hawaiian Homes Commission Act of 1920 attempted to redress the inequality created by the colonization of Hawaii; it gave homestead leases to native Hawaiians for residential, agricultural, and pastoral use.

The U.S. has also paid reparations for the internment of—and confiscation of wealth from—Japanese-Americans during World War II. The Civil Liberties Act of 1988 led to reparations for Asian-Americans for Franklin Delano Roosevelt’s Executive Order 9066. During World War II, despite constitutional and moral objections, Japanese-Americans had their wealth confiscated and were sent to internment camps because of anti-Asian sentiment fueled by the war. They were paid $20,000 in reparations and given an apology in the 1988 legislation, which also made $12,000 restitution payments to Aleuts for losses during the war.

On April 14, 2021, the House of Representatives Judiciary Committee advanced a bill, H.R. 40, that would consider both a national apology and reparations proposals for slavery to the House floor for full consideration. The bill would also examine the long-term impact of slavery on Black communities in the U.S. The vote met with some anticipation by advocates of reparations, especially because President Joe Biden has indicated his support for a study of reparations in a campaign promise and in his office’s statements to the press.

Among others, Dreisen Heath, a researcher for Human Rights Watch, praised the vote as historic and urgent. “This milestone moves the nation one step closer to comprehensively reckoning with the disastrous effects of slavery that continue to compound for Black people every day,” he said in a statement.

The Bottom Line

There are a number of legal milestones—legislation, executive actions, court decisions—that have attempted to reduce income inequality. However, though the legal system of the country has moved to limit some types of inequality, such as racial discrimination through laws and court decisions, it has moved sluggishly in other areas. Inequality persists, even in the areas it has been addressed.

As inequality has grown, people have described the 21st century as a “Second Gilded Age.” The historian David Huyssen has pointed out that the popularity of this comparison leads to the popularity of political solutions that harken back to the Progressive Age. The problem with this, Huyssen argues, is that the solutions to the inequality of the Gilded Age formed a “crucial seedbed for our own era’s historically distinct expressions of inequality.”

To take one example, in which rules such as restrictive covenants and redlining prevented minorities from accessing the government-subsidized attempts to build stability and increased inequality. Court settlements from 2015—such as a nearly $1 million settlement in New York involving Evans Bank—indicate that banks continued to deny mortgages to members of minority groups into the 21st century. As the majority of wealth for the typical American household is connected to homeownership, this is significant in understanding income inequality in the broad sense employed in this article.

Solutions to inequality in general—as well as to income inequality specifically—will require an understanding of the peculiarities of these distinct historical expressions. To solve these problems, people like Elise Gould, an economist at the Economic Policy Institute, have argued that regulators will need to keep labor markets tightly regulated, strengthen and enforce labor standards, make it easier for workers to collectively bargain, and raise the federal minimum wage.