Question 1
The recent income distribution in U.S. indicates that the top 20 percent of the population earn above fifty percent of the aggregate income whereas the bottom 20 percent get 3.4 percent of the aggregate income. The main benefit of this unequal income to the economy and society is that it fosters economic growth (Krueger 8). The top 20 percent who receive more than half of the total income play the vital role of creating more jobs in the economy in terms of doing mega investments. The majority bottom 20 percent receiving the meager income own the skills required in the investments and therefore getting employed, earn income and increasing their purchasing power in the economy. The rationale behind this is that lower and middle-income earners do not save enough and thus have nothing to invest unlike the wealthier top 20 percent of the population.
Question 2
The primary way in which the current income distribution is a cost to the economy and society as well is the loss of revenue. The government mainly generates its revenues via progressive taxation. But in an economy where very few individual receive above half of the nation’s aggregate income, a few wealthy individuals contribute a huge amount of revenue to the government. The majority at the low-income level tend to contribute little revenue to the government. A country with a considerably high number of income earners will raise a huge budget for its government to spend in the provision of public goods. Low-income earners fall within the lowest taxation brackets, implying they are taxed nothing or very little; hence, the states receive almost no revenue.
Question 3
The federal government should not influence the distribution of income via tax policy and social programs. The reason being that a measure aimed at minimizing the income distribution inequality heightens economic inefficiency by mitigating political pressures advocating inefficient policies (Krueger 5). Progressive taxation, which is aimed at taxing the rich more and the lower income earners fewer deters people from working hard. Measures that aim at redistributing income kill the spirit of hardworking citizens and encourage laziness among the poor. Therefore, income distribution measure undermines the work ethics of the rich and results to a tendency where the rich devote more of their time for leisure rather than working. Hence, decrease in the national revenues obtained through taxation.
Question 4
In my opinion, the primary risk for not influencing the present income distribution by the federal government is the increase in income inequality. Increment in income disparity implies few become people are rich and more remain poor, which may result to very little saving in the economy and hence few investment and in turn stagnation in economic growth in the future. The primary uncertainty for not influencing income distribution is the lack of enough funds to support welfare programs that are often financed via redistribution of income initiatives.
Question 5
My description of the figure is that the distribution of personal income in the U.S. depicts a trend of rising inequality in the economy. The measure one would consider to rectifying this increasing income inequality is to introduce a progressive taxation policy. Progressive taxation has the benefits of taxing more high-income earners and utilizing the revenue to giving out transfer payments to the unemployed and retired individuals. The cost that comes along with taxation is that it deters people from working hard to evade paying more taxes. Discouragement to foreign investors is the primary uncertainty associated with progressive taxation. The primary risk is that it may not lead to the desired ultimate result of equality in income distribution.
Work cited
Krueger, Alan. "The rise and consequences of inequality." Presentation made to the Center for American Progress, January 12th. Available at http://www. americanprogress. org/events/2012/01/12/17181/the-rise-and-consequences-of-inequality (2012).
