Social and political movements, such as Occupy Wall Street, have drawn increased attention to income inequality in the United States. The assertions these movements build platforms on include the notion the income of the top socioeconomic groups continues to grow at a faster rate than the income of the middle and lower socioeconomic groups. If a small group already possesses a disproportionate amount of the nation’s financial resources, it is understandable why lower socioeconomic groups would react emotionally to the idea that said group is continuing to gain more. Compounding the problem is the evidence that states that the income of the lower socioeconomic groups is on the decline.
While the data supports the assertion that income inequality in America is on the rise, the real question is why income inequality is a pressing issue. Does the presence of income inequality lead to further problems, such as social unrest, stalled macroeconomic growth, and the need for government intervention? Is there a way to ensure that income inequality is minimized or even eliminated? Researchers seem to agree on the fact that growing income inequality can lead to both social unrest and stalled macroeconomic growth. What researchers tend to disagree on is whether income inequality can be reduced and eliminated through government intervention.
Given the fact that the United States’ economy primarily operates under the principles of capitalism, it is highly doubtful that a capitalistic market structure is optimal for the minimization of income inequality. Government intervention can accomplish some degree of income redistribution as long as both political parties compromise – a feat that has been more than difficult with increasing political polarization. In order to fully address and solve the problem of income inequality, the United States government and the country’s citizens need to reevaluate the effectiveness of capitalism.
A study on the prevalence of income inequality in the United States found that the average real income of the top one percent of tax filers increased from $534,264 in 1991 to $857,477 in 2010. The proportion of total income in the United States that the top one percent of earners held rose from 7.7 percent in 1973 to 18.3 percent in 2007. The share of household income for the top one percent from 42.6 percent to 50.2 percent between 1968 to 2001. In contrast, the share of household income for the bottom percent decreased from 4.2 percent to 3.2 percent during the same period (Jongsung and Tebaldi 1). These figures clearly illustrate the fact that the rich are becoming richer at the expense of the poor. Income inequality in the United States is simply not a theory; it is a clear fact. Those in the lower socioeconomic classes not only feel as though they are being exploited, but that the promise of the American Dream is a fraud.
Income data collected in each state in American revealed that income inequality was greater for nominal income versus real income. Nominal income represents income in current prices, while real income adjusts for price differentials between states (Ram 131). In other words, real income takes into account cost of living adjustments. For instance, it is well-known that housing costs substantially more in California and New York than in Nebraska or Wyoming. An annual income of $40,000 in Florida can be equivalent to an annual income of $100,000 in New York due to price differentials.
The data also reveals that nominal income inequality is less in 2010 than it was in 1989 between states, even though total income inequality in the country has been increasing since 1977 (Ram 132). What the data seems to be saying is that income inequality amongst the states is slowing or decreasing, while overall income inequality is on the rise. Soon the exact amount that an individual makes in the state of Nebraska will equal the amount that an individual makes in the state of California. The income one makes will not necessarily be adjusted for the cost of living differential between the two states, thereby increasing the real income inequity. Since it costs more to live in California, only those within the top socioeconomic tiers will be able to afford to live in the state.
Some economic experts propose a global wealth tax to help reduce income inequality, while others call for new economic policies under the current capitalistic structure. Increases in the amounts charged for rent on land and other assets has largely been responsible for the rise in income inequality, along with tax laws, education, monetary regulations, and increasing market dominance, according to economic experts (Diamond 390).
What these experts are failing to acknowledge is that the increase in income inequality is largely driven by greed. Those at the top are not satisfied with the percentage of income they have and therefore feel justified in charging more for the use of the resources they own. Unfortunately, the increase in prices and stagnation of wages has resulted in the economic exploitation of the middle and lower classes. Past government regulation has supported the efforts of the top earners and has compounded the problem.
The middle and lower classes have been unable to gain enough political influence to be able to stand up against the political lobbying groups arguing in favor of the private business sector. Rewriting the tax laws for the top socioeconomic classes and the business sector is only a start. The business sector needs to be educated on the long-term effects economic exploitation and inequality has. Without adequate discretionary income flowing through the middle and lower socioeconomic classes, the top classes and the business sector will not be able to be sustainable. While they can choose to horde more resources at the top, a balance between socialism and capitalism is needed to fix the United States’ income inequality issue.
Works Cited
Diamond, John. "Forum: Income And Wealth Inequality." National Tax Journal 68.2 (2015):
389-391. Business Source Alumni Edition. Web. 20 July 2015. <http://search.ebscohost.com/login.aspx?direct=true&db=bah&AN=103130621&site=ehost-live>
Jongsung, Kim, and Edinaldo Tebaldi. "Trends And Sources Of Income Inequality In The United
States." Journal Of Business & Economic Studies 19.2 (2013): 1-13. Business Source Alumni Edition. Web. 20 July 2015. <http://search.ebscohost.com/login.aspx?direct=true&db=bah&AN=99389508&site=ehost-live>
Ram, Rati. "Real And Nominal Interstate Income Inequality In The United States: Further
Evidence." International Advances In Economic Research 21.1 (2015): 131-132. Business Source Alumni Edition. Web. 20 July 2015. <http://search.ebscohost.com/login.aspx?direct=true&db=bah&AN=101149030&site=ehost-live >
