Some people believe that the inequality in the United States is not as bad as it is portrayed, while others, including myself, believe that it is a major issue that permeates our country. The gini coefficient is a ratio that offers one insight into the inequality that is present in a nation’s residents by measuring dispersion of income.
Figure 1: Gini Coefficient Trend (US)
As one can see from Figure 1, The Gini Ratio has been rising in recent years. It is important to note that there are big increases in the Gini Ratio following recessions, which constitutes greater redistribution of income. The income inequality seems to follow an upward trend with a he increase following the 1992 recession without any signs of a major decrease. The United States needs to try and stabilize the economy more, which can be very difficult since most of the people in this country are profit-seekers and will take any opportunity that offers a great revenue, even if that may send the United States into a recession. (Housing Bubble)
Figure 2: Mean Household Income in 2012
Source: Wolff The Asset Price Meltdown and the Wealth of the Middle Class
Figure 3: Distribution of Household Income percentages
As one can see in Figure 2, there is a great level of disparity in income between the top 1% and the bottom 99%. People in the 1% are earning 6.5 times more money on average than the top 20%. Figure 3 also helps to illustrate the disparity in incomes as a percentage. One can observe that most of the income is amassed in the highest Quintile. However, one is able to see that the government is doing it part to combat this by taxing in what appears to be progressive income taxation. We can see that the highest quintile is responsible for paying most of the taxes that are generated in the United States, but that is a result of their very high level of income. The lowest quintile pays the lowest level of taxes but that is due to their small level of income that at times may be enough to offer a subsistence level of living. By doing this, the government attempts to collect more of the income from the rich and can use it to pay off the national debt, or in times of a recession pump it back into the economy as either government spending or subsidies.
If the United States continues to have this level of income inequality, it may not be sufficient to simply tax the rich. However, since the United States is a very capitalist country, it needs to take this into consideration when developing a strategy of income redistribution.