The problem of income inequality is of high social importance: it negatively affects the country’s economy and society. The United States has the highest income inequality among industrialized nations (Bor, Cohen, and Galea 1478). Measured for all households, US income distribution is comparable to that of other countries before taxes, but on a per capita basis, the lower classes show little long-term growth. Given the rise in inflation and rising incomes for the upper class, this is a national problem.
The tax surges in 1938-1968 created a particular unstable ground on which the US economy was based forty years ago. Tax rates disproportionate to income went up to more than 90% for the lower and middle classes, while the wealthiest paid no more than 20% (Kraus 199). The loopholes were closed in 1964, and around the same time, Medicare and Medicaid were introduced (Kraus 201). These events led to a change in income due to higher wages for workers in trade unions, free external competition, and government support for workers.
However, the return to inequality began in the 1980s. If taxes were reduced in the seventies, there was a steady increase during this period until 1990 and 1993, after which they rose again in 2010 (Bor, Cohen, and Galea 1480). The introduction of social security programs partially contained the income gap, but the recession in 2000 was backfiring again. The recession resulted in a high unemployment rate and a slowdown in the growth of the US gross domestic product. Taxes fell in 2001 and 2003, but the rest of the situation worsened. More progressive, high-income companies could afford the latest technological equipment, an essential aspect of being competitive in almost any market. Companies that did not have such capital were losing and could neither provide their employees with a competitive salary nor gain the same growth rate to overtake inflation.
By 2007, the wealthiest businesses were paying the highest percentage of income tax, but by 2016 the rate had dropped significantly. The main reason was the Great Recession of 2008, caused by the accumulating bubbles in the real estate markets and growing private debt, which led to the creation of many jobs. Consequently, underground banking began to develop, and in response, the Federal Reserve spurred economic growth by lowering tax rates (Bor, Cohen, and Galea 1486). In 2017, tax rates were again lowered, the desired effect of income growth.
At the same time, it turned out that the wealthiest people in America together have more wealth than the entire lower half of the population. It led to the historical event when the upper class paid a higher tax rate than the lower and middle. However, while incomes have risen, inequality has risen in the same proportion as the 2019 statistics showed, peaking in many years. The fact is that the stagnation of family income after taxes is significantly inferior to the growth rate of the upper strata of society. Given the rise in inflation, the middle and lower class can afford fewer and fewer consumption opportunities every year due to falling purchasing power, which negatively affects the stimulation of the economy. Finally, another economic crisis in the form of a pandemic will widen the gap again, as large and wealthy companies can painlessly survive a difficult situation while still allocating money for innovations that contribute to competitiveness.
Potential policy initiatives should improve the infrastructure of urban and rural locations to ensure that jobs are accessible to many people. In addition, to halt the rate of increase in poverty, it is necessary to design social security programs so that people stay longer in the workplace and have the opportunity to increase their income without high risks. The introduction of a minimum wage would allow avoid unfavorable employer decisions for workers, lowering the level of unemployment. Consequently, the purchasing power of the lower and middle classes would increase, and the economy would receive an essential boost in development.
Works Cited
Bor, Jacob, Gregory H. Cohen, and Sandro Galea. “Population health in an era of rising income inequality: USA, 1980–2015.” The Lancet, vol. 389, no. 10077, 2017, pp. 1475-1490.
Kraus, Franz. “The historical development of income inequality in Western Europe and the United States.” The development of welfare states in Europe and America. Routledge, 2017, pp. 187-236.