Nation

Divided Nation

A look at nation’s vast wealth gap, in sharp relief

Karla and Juan Ayala live on Juan’s $23-an-hour pay in a mobile home in Glenwood Springs, Colo., along the same Roaring Fork River that runs through Aspen.

Chris Council for The Boston Globe

Karla and Juan Ayala live on Juan’s $23-an-hour pay in a mobile home in Glenwood Springs, Colo., along the same Roaring Fork River that runs through Aspen.

First in a series of occasional articles on issues that polarize the American electorate.

ASPEN, Colo. — One morning a few months ago, Juan Ayala arose in his mobile home in a town west of here, said goodbye to his wife, Karla, and drove along the banks of the Roaring Fork River. He ascended a twisting mountain road, passed through a security gate, and arrived at a mansion the size of the White House.

Ayala didn’t know it at the time, but his job installing fire-prevention equipment had taken him to the home of John Paulson, one of the world’s wealthiest men. Paulson had made nearly $4 billion correctly betting on Wall Street that the US housing market would crash — a slide that would prompt the Great Recession — and he used part of his fortune to buy the mountaintop estate.

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It is a very long way from Ayala’s hourly job with no health insurance to Paulson’s $11.2 billion fortune. Ayala doesn’t begrudge the wealthy their money and is grateful for the work. But he couldn’t help but marvel that “the master bedroom is bigger than my home.”

What Ayala witnessed on his journey along Highway 82, from a trailer park to one of the world’s most exclusive communities, neatly encapsulates what many potential presidential candidates say could be, or should be, the defining domestic issue of the 2016 campaign: America’s extraordinary level of wealth inequality.

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The statistics are astonishing from any political viewpoint: the nation’s 100 richest families, including a number who reside here part of the year, have as much wealth as the 80 million families who make up the bottom 50 percent in wealth, according to economist Emmanuel Saez of the University of California, Berkeley.

Most people in the bottom half own no stock, have little or no savings, and have seen their wages remain stagnant for years, Saez said.

Of all the divisions in a sharply divided America, the chasm between the super-rich and the working poor — and the accompanying shrinkage of the middle class — is widely seen as the greatest. Yet neither Democrats nor Republicans appear to have a politically viable plan that would dramatically shrink the wealth disparity.

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Republicans say the response to inequality is to reduce regulations and cut corporate and personal tax rates, doubling down on their belief that it will lead to more job creation. Democrats want to increase taxes on those earning more than $1 million and raise the national minimum wage.

With nothing like consensus on either plan, the improving economy may be the only thing to help those of all income levels, but even prosperity may be helpless against the inequality gap, as the ultrarich will likely see gains outpacing all others.

For many voters, meanwhile, it all raises questions both painfully financial — how will my wallet be hit? — and economically sweeping: Is wealth inequality an inexorable outgrowth of free markets? Or has a series of political actions caused it to be much greater than it might otherwise be? Why has the gap persisted, and grown? And why can’t either party come up with realistic plans to close it?

As it happens, some of the clues, and perhaps some of the answers, can be found here in Aspen.

* * *

First, some history.

The gap between rich and poor has long been one of the defining issues in American politics. Before there was Aspen, there were enclaves of extravagant wealth such as Newport, R. I., with its row of oceanfront mansions. The Gilded Age had its J.P. Morgan and the Vanderbilts. The great wealth of a few helped spur the first government efforts to temper runaway accumulation of wealth, culminating in the passage of the federal income tax in 1913.

Still, by 1928, the top 0.1 percent controlled about 25 percent of the nation’s wealth, the most recent high-water mark of inequality. Then, in the wake of the stock market crash — which struck monied investors with special force — a series of tax increases on the wealthy and New Deal programs for the working poor and retirees helped shrink the gap.

The gap narrowed further as the United States geared up industrially for World War II and experienced the postwar boom. Tens of millions were lifted into the middle class. The gap narrowed yet again as American companies, with many foreign competitors hobbled by the war, dominated many industries around the world.

By the late 1970s, some were ready to declare victory. Wealth inequality had narrowed to the smallest level of the 20th century, with the top 0.1 percent of Americans holding just 7 percent of the nation’s wealth.

But it wouldn’t last. The gap began to widen dramatically around 1980 as other countries rebuilt their economies, and Japan and Germany cut into the auto market, a critical middle class employer in the United States. Globalization cut into US wages as China, India and other nations offered labor at a fraction of the cost of US plants, prompting a further decline in American manufacturing, the traditional base of higher-wage employment. The percentage of people in labor unions, whose bargaining power had played a role in narrowing the income gap after the New Deal, has dropped from 20 percent to 11 percent since 1983, according to the US Bureau of Labor Statistics.

The wealthiest, meanwhile, benefited from a steep drop in top tax rates, notwithstanding recent hikes signed into law by President Obama. The top tax rate dropped from 91 percent in 1963, to 35 percent under President George W. Bush, and then to the current 39.6 percent under Obama. The top tax rate on capital gains is 20 percent, which disproportionately benefits the very wealthy; three-quarters of all capital gains goes to millionaires, according to the nonpartisan Tax Policy Center.

Two of Obama’s main efforts to shrink the gap went nowhere. The GOP killed Obama’s proposal to enact what he called the “Warren Buffett rule,” named after the Nebraska billionaire who has said his taxes are too low. It would have raised taxes on the wealthiest 0.3 percent of Americans by placing a 5.6 percent surtax on income over $1 million. Republicans also blocked Obama’s plan to raise the minimum wage from $7.25 to $10.10 an hour.

By comparison, pay at the top has skyrocketed. In 1965, chief executive officers typically made 20 times as much as their workers. Today, chief executives at Fortune 500 companies make, on average, 354 times as much as their rank-and-file workers, according to a study coauthored by Harvard Business School professor Michael Norton. And it is not just chief executives; the tech boom has created a new class of billionaires who have built companies with a relative handful of employees.

The result: the top 0.1 percent controlled 22 percent of the nation’s wealth in 2012, according to Saez. If the trend continues, the gap could return to the high-water mark of about 25 percent around Election Day 2016.

Politics, meanwhile, has become more and more a province of the wealthy. The Supreme Court’s 2010 loosening of campaign finance laws enabled 100 super-wealthy Americans to account for 41 percent of contributions in 2012 to so-called super Political Action Committees, many of which apply pressure to prevent tax hikes on the wealthy and to fight increases in the minimum wage. (That does not include the unlimited “dark money” contributions also allowed by the Supreme Court rulings.)

All of which helps explain how a place such as Aspen became the epitome of wealth inequality.

Rocky Mountain high end

A plane banks sharply over the snow-capped Rockies, levels over the Roaring Fork River valley, and lands at an airport within minutes of Aspen’s ski resorts. The tarmac is lined with dozens of private jets, so many that locals refer to the fleet as the “Aspen Air Force.”

Across the river, high in the distance, is the gated development of Starwood, where the home of the late singer John Denver, of “Rocky Mountain High” fame, is for sale for $10.75 million. In town, in the shadow of Aspen Mountain, where a gondola whisks skiers on a 2.5 mile ride up the 11,212-foot peak, a five-bedroom condominium can be had for $9.9 million and a West End house goes for $18.5 million.

Just outside of Aspen, sprawling mansions perched on prestigious Red Mountain can cost $20 million or more. The owners are corporate chieftains or royal families, from old money or Facebook-type money, all fitting under the category known by brokers as UHNWI, an “Ultra High Net Worth Individual.”

Homes on Red Mountain can cost $20 million.

Chris Council for The Boston Globe

Homes on Red Mountain (pictured) can cost $20 million.

Aspenites have long known they live in a city of extraordinary wealth. But even the jaded have marveled at some recent exercises in excess. A wedding held last year on the backside of Aspen Mountain was seen as the symbol of just how rich things can get here; it required the temporary assembly of 27,000 square feet of giant covered platforms, dance floors, and a chapel. (For comparison, that is roughly equal to the square footage of Boston’s Quincy Market.)

A local news operation called Aspen Journalism reported last year that 50 of the world’s 1,826 billionaires own property in the county in which Aspen is located. Ranked by wealth, the list led with the Koch brothers, best known for backing libertarian and Republican causes: Charles Koch has a $5.8 million home, and David Koch has two houses worth a combined $12.7 million.

Due to their success running the conglomerate Koch Industries, the nation’s second largest privately held company, they are tied for sixth on the Forbes magazine list of the world’s wealthiest people, with $43 billion apiece. Their houses fit neatly into a West End neighborhood, where neighbors include members of families such as Walton and Lauder, of Walmart stores and the Estee Lauder cosmetics company.

A third Koch brother, Bill, (who also owns a mansion on Cape Cod) recently put an estate about 12 miles from Aspen on the market for $100 million. He is selling the property in order to focus on building a replica of a Wild West town a few hours drive from Aspen.

 Bill Koch’s estate near Aspen was recently put on the market for $100 million.

Chris Council for The Boston Globe

Bill Koch’s estate near Aspen (pictured) was recently put on the market for $100 million.

“In the ’70s, ’80s, and even early ’90s, the top echelon was making 10 times what a doctor, lawyer, big banker, was making,” said Adam Frisch, a former currency trader who is now an Aspen city councilor. “Now they are making 3,000 times as much.”

Perhaps the tipping point in Aspen came when Saudi Prince Bandar bin-Sultan received a building permit in 1990 for a 55,000-square-foot house, almost the exact size of the White House.

Bandar eventually put it up for sale at an asking price of $135 million, which would have made it one of the most expensive residences sold in the nation’s history. But the market was down, a fact that few knew better than a hedge fund manager named John Paulson.

Paulson, a Harvard Business School graduate who got his start working for the Boston Consulting Group, was little known outside Wall Street’s inner circle when he seized upon the idea of betting against the US housing market in 2007.

Millions of middle-class families, as well as many in lower income brackets, had taken out “sub-prime” loans that they soon learned they couldn’t afford. The housing market went south and many mortgages exceeded home values. The mortgages were consolidated into batches that were then sold as financial instruments, and Paulson correctly bet that many would fail.

An estimated 7 million families have lost their homes to foreclosures since 2007, according to Mark Zandi, chief economist of Moody’s Analytics. That pushed many of those families to lower rungs of the wealth scale. The crisis is not over for many: 6.5 million families still hold mortgages larger than the value of their home, putting them “underwater,” in real estate parlance, and further widening the wealth gap.

Paulson’s hedge funds skyrocketed as his bet paid off; one went up 590 percent. He personally earned nearly $4 billion in 2007, according to The Wall Street Journal. Few, if any, Americans came out of the economic crisis having gained so much.

Paulson illustrates the wealth gap in another crucial way. He not only profited from the housing crash, he was able to keep more of his profits because hedge funds managers are mostly paid in what is known as “carried interest,” which at the time was taxed at a 15 percent rate, and has been subsequently been raised to 20 percent.

Critics have called this the “hedge fund loophole,” noting that it is far lower than the current top rate of 39.5 percent. The break costs the Treasury $21 billion over 10 years, according to the Congressional Budget Office, but efforts to eliminate it have gone nowhere in Congress. It remains one of the most lucrative ways that the very, very rich get even richer.

Paulson was asked about his tax rate in a 2008 congressional hearing.

“A school teacher or a plumber or policeman makes on the average of $40,000 to $50,000 a year, yet they have to pay 25 percent tax. You make $1 billion, yet your rate can be as low as 15 percent,” said Representative Elijah Cummings, the Maryland Democrat. “Is that fair, Mr. Paulson?”

Replied Paulson: “Yeah. We certainly appreciate your concern for fairness in the tax code. But what I will say, I believe our tax situation is fair.”

“We certainly appreciate your concern for fairness in the tax code,” said John Paulson. “But ... I believe our tax situation is fair.”

Fred R. Conrad/The New York Times/File

“We certainly appreciate your concern for fairness in the tax code,” said John Paulson. “But ... I believe our tax situation is fair.”

A couple of years later, Paulson, who has vacationed here for more than three decades, began pouring some of his profits into Aspen. In 2010, he purchased a house for $24 million. But that apparently was too small. In 2012, he purchased Prince Bandar’s 90-acre estate, as well as a guest house on an accompanying parcel, for $49 million. At the time, he boasted that he paid far below the $135 million asking price.

Paulson, who declined an interview request, said in a statement that “successful” families “do a lot to drive and support the local economy.” Asked whether he has contributed to local institutions, he said in the statement that he has done so elsewhere and, “As my family and I spend more time in Aspen, I am sure we will learn of similar institutions that benefit all residents of Aspen and its surrounding areas.”

Meanwhile, the renovations continue on Paulson’s estate here, which is how Juan Ayala arrived on the scene.

* * *

Juan Ayala is sitting in his mobile home in a trailer park in Glenwood Springs, 40 miles northwest of Aspen, beside his wife, Karla. They live along the same Roaring Fork River that runs through Aspen. Their yellow home, one of many arranged in a row in the shadow of 12,966-foot Mount Sopris, is neatly decorated, as comfortable as a double-wide can be. They are a handsome, proud couple, with a young son and daughter, and dreams as big as anyone’s.

But it is a struggle living toward the bottom of America’s wealth scale.

Karla, 28, who arrived in America as a 14-year-old to join her father, is a US citizen and speaks with the cadence and passion of someone who might aspire to political office, although she has no plans to do so.

While living in Glenwood Springs, she met a fellow Mexican emigre, Juan, 35, who is in the process of gaining citizenship. She recently left her job to go to college for a degree, perhaps in nursing or psychology. She mentors parents at a local elementary school. She buys only what she needs. Juan is the sole source of income, making about $23 an hour.

Juan has been to college, training to be a mechanical engineer, a career he hopes to pursue in the future. His job installing fire- prevention equipment such as sprinklers is a good one, but the stories he brings home at night, of the fabulous mansions he has worked in, have left him and Karla shaking their heads.

He didn’t know that Paulson owned the home at which he recently worked until a reporter told him the homeowner’s identity. But he knew whoever owned the home had vast means. One day, he said, another person on the job got so lost on his journey through one wing that he had to call a co-worker on his cellphone to find his way back.

“You will never walk into a house like that and get the warm feeling of a home,” Karla said, with a nod toward her much more humble abode.

Even in Aspen, such ostentatious displays of wealth have generated heat. The local newspaper, The Aspen Times, recently quoted a longtime resident complaining about “part-time residents with enormous financial resources building mini theme parks of second homes.” Local officials responded to the Bandar house by putting a 15,000-square-foot restriction on house sizes, and are considering limits on enormous temporary structures such as the ones used in the recent wedding.

But such restrictions have hardly slowed the flood of the ultra-wealthy. On a recent morning, when an overnight storm coated the village’s Victorian homes and evergreen-lined streets in fairy-tale dollops of powdery snow, the wintry scene frequently was interrupted by the drone of construction machinery, including the renovation of a green-shingled, gabled Victorian once owned by actor Jack Nicholson.

January was the best month for home sales in Aspen since 2007, according to the Estin Report, produced by local real estate agent Tim Estin. Homes in the center of town are going for $18.5 million, feeding the impression that the boom is back, at least among the Ultra High Net Worth Individuals.

Long way from ‘Pleasantville’

A parade of four-wheel-drive wagons, SUVs, and trucks snaked along the highway into Aspen on recent morning, skis fastened to rooftops, passengers headed toward mountains with names like Buttermilk and Snowmass.

Mixed amidst this entourage were leaner cars on a more prosaic mission, carrying the maids, janitors, clerks, waiters, waitresses and other workers who make Aspen hum. More than half of the city’s 11,000 workers are so priced out of Aspen, and the surrounding area, that they must drive more than an hour to work here, according to city officials.

For many residents and tourists, places such as Aspen are snow-globe worlds, seemingly perfect and self-contained. But zoom out on the map and a different pictures emerges, said Jon Fox-Rubin, who runs a nonprofit group that serves low-income residents throughout the Roaring Fork Valley.

“There are people who live in Aspen who never venture down-valley,” Fox-Rubin said. “They live in ‘Pleasantville,’ impeccably restored beyond its original splendor.”

What is missing from the picture, Fox-Rubin said, is what he calls Aspen’s “back office.” Fox- Rubin knows this intimately. He grew up in Aspen when it was far less affluent, and he could count on help from neighbors if he went wayward. He credits them with putting him on a path that led him to receive a doctorate in mechanical engineering from the Massachusetts Institute of Technology.

After some world travels, he was drawn back by Aspen’s mountain lifestyle. But he could no longer afford to live there. Instead, he settled 17 miles down the valley in Basalt, a humbler but still pricy mountain town, and it was there, tucked into bends of the Roaring Fork River, that he found trailer parks filled with immigrants. Many of those residents struggled financially. But Fox-Rubin realized that they were, ironically, essential to Aspen’s ability to thrive as a center for the super-wealthy.

Fox-Rubin, like so many here, does not bash the rich. He just wants more of them to see the entire valley, from the trailer parks to the greatest estates, as one entity. To that end, he is executive director of Valley Settlement Project, which provides educational and transportation resources, among other things, to help the working poor remain in the Roaring Fork valley.

Many of the workers, both legal and undocumented, are from Mexico, an influx that once was a point of contention in Aspen. In 1999, the City Council passed a resolution urging Congress to enforce immigration laws, which left Aspen with an anti-immigrant image, according to the book, “The Slums of Aspen.”

More recently, however, the Aspen Chamber Resort Association urged Congress to pass legislation that would put most of the nation’s 11 million undocumented immigrants on a path to citizenship.

“My entire housekeeping staff is Hispanic,” said Warren Klug, general manager of the Aspen Square Hotel. “You would find that at most of the properties in Aspen. These are hard-working people and we are glad they are here, because if they weren’t we’d be handing people a vacuum when they checked in.”

While Klug emphasized that he runs background checks that eliminate one-fourth of job applicants as undocumented, he said some businesses might not go to the same length.

Aspen has long sought ways to house its working class. The local housing authority, which serves the city and surrounding Pitkin County, receives money from a 1 percent real estate tax that subsidizes 2,900 housing units for sale or rent.

While some subsidies are given to those earning $15,000 per year, persons with unlimited income and as much as $900,000 in assets can also be eligible, according to the Aspen Pitkin County Housing Authority. But it is still not enough for thousands of workers who must live far away, and undocumented immigrants cannot apply.

So the workers spread out across the valley, where groups such as Fox-Rubin’s try to help them remain.

George Stranahan, an 83-old-year whose family owned the Champion spark plug company and who has long lived on a ranch near Aspen in Woody Creek, is a financial backer of Fox-Rubin’s Valley Settlement Project. He said the blame for the wealth gap should not fall on the wealthy.

“The rich get richer,” Stranahan said. “This is a good thing. We ought to celebrate this. You need accumulations of wealth because the wealthy save it, and savings equal investment, and investment drives the economy. Not trickle-down; investment.”

Yet, he said, “The middle class are becoming poorer. What is the cause of more poor people? It is not more rich people. It is something societal. It is a question of policies.”

That brings the issue back to the national arena, where the distance between politicians about what policies to implement is as vast as the gap between the rich and poor of the Roaring Fork Valley.

Jon Fox-Rubin (right) is executive director of the Valley Settlement Project, which receives financial backing from George Stranahan (left). The project provides educational and transportation resources for the working poor in the area.

Chris Council for The Boston Globe

Jon Fox-Rubin (right) is executive director of the Valley Settlement Project, which receives financial backing from George Stranahan (left). The project provides educational and transportation resources for the working poor in the area.

* * *

It was last June when Hillary Clinton arrived here to speak at a forum called the Aspen Ideas Festival. The front-runner for the Democratic presidential nomination took her seat in a pavilion, surrounded by all the wealth and splendor that Aspen had to offer, and promptly faced a question about financial inequality.

Days earlier, she had said she and her husband, former president Bill Clinton, were “dead broke” when they left the White House, drawing ridicule given that both Clintons have made millions of dollars from speaking fees and book contracts.

Clinton tried to smooth things over, telling the Aspen audience inequality would be a key issue. “So many Americans are really, really nervous,” the former secretary of state said, in what sounded to some like criticism of the Obama administration in which she had served for four years. “They feel like they’re falling behind, that at best maybe they’re running in place.”

Clinton’s discomfort with the issue mirrors that of her party. Democrats represent a range of constituencies from Main Street to Wall Street and have sometimes struggled with their message. Inequality was supposed to be a key Democratic issue of the 2014 midterm elections, but it barely registered with voters and the party lost the Senate.

So last January Democrats invited a wealthy Seattle backer, Nick Hanauer, to present his proposed solutions at a party meeting. Hanauer, an early investor in Amazon.com, had warned in a video months earlier that the wealth gap has grown so great that the poor one day will rise up against the super-wealthy.

“Democrats in general have had a horrible product for a very long time, mostly because they accepted the ‘trickle down’ explanation of where growth came from,” Hanauer said in an interview. “Their trickle down was, ‘Our CEOs are nicer than your CEOs,’ rather than offering a competing explanation where growth came from.”

Hanauer told Democrats that they should distance themselves from the idea that “the rich are job creators” and urged them to increase taxes on the wealthy and pass a hike in the minimum wage to $15 an hour, not just Obama’s proposed $10.10, giving workers much more to spend. That, he said, would enable Democrats to argue that growth can come from the “middle out” instead of the Republican theory of “trickle down,” and would help close the wealth gap.

But Republicans have repeatedly rejected a hike in the minimum wage and have said they will oppose tax hikes on the wealthy, both of which they view as job-killers.

The GOP has also struggled to find a way to talk about inequality. Republican candidates seem eager to distance themselves from the rhetoric of their failed 2012 nominee, Mitt Romney, who said 47 percent of Americans at the bottom of the nation’s economic ladder view themselves as “victims” and that his job was “not to worry about those people.” In the aftermath of Romney’s loss, nearly every prospective GOP candidate has called wealth inequality one of the most important issues.

For example, Senator Ted Cruz, the conservative Texas Republican, sounded almost like a liberal Democrat as he spoke to the issue at a forum in January, saying, “Right now what we have in this country is really a divided America. For those with resources they’re doing great right now . . . the top 1 percent earn a higher share of our income nationally than any year since 1928.”

Former senator Rick Santorum of Pennsylvania said in February at an Iowa event that the party has to change its rhetoric. “One of our favorite sayings, I know that you hear Republicans say all the time is, ‘A rising tide lifts all boats.’ And that is true, unless, your boat has a hole in it.”

So while the parties seem to agree on the problem — no small thing in politics — they disagree almost completely on the solution. Thus the stage is set for what should be one of the most vigorous and important debates of the presidential campaign.

Back in the Ayala mobile home in Glenwood Springs, Karla and Juan talk about their future, and that of their adopted country. They say they have one main passion, one familiar to generations of immigrants: to give their son and daughter a better life here.

“I really do believe in the American dream,” Karla said. Her family wants to stay in the Roaring Fork Valley, move up from a mobile home to a regular one. Their intimate knowledge of the luxurious lifestyle farther up the valley has not changed their modest outlook. To the contrary.

“We don’t want to live a life with excess,” Karla said. “That somehow gets you away from reality, and not let you see there are a lot of people out there who live with a lot less. Money is amazing, there’s a lot of things you can do with money. A lot of good and a lot of bad. But when I pray, I don’t pray for money.”

Correction: An earlier version of this story cited the asking price of Prince Bandar’s 90-acre estate as $135 billion. It is $135 million.

Michael Kranish can be reached at kranish@globe.com. Follow him on Twitter @GlobeKranish.
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