Income Inequality in the United States

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.

FRED

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)

Mean

Figure 2: Mean Household Income in 2012

Source: Wolff The Asset Price Meltdown and the Wealth of the Middle Class

Disparity in income in percentage

Figure 3: Distribution of Household Income percentages

Source: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44604-AverageTaxRates.pdf

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.

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5 thoughts on “Income Inequality in the United States

  1. letitgoeverythingisawesome

    It would be interesting to see what the taxes paid graph would look like if it included state and local taxes as well as federal taxes.
    As for who pays the taxes, it certainly makes some sense to go after the rich. As famous bank robber Willie Sutton stated when asked why he robbed banks, “because that’s where the money is.”

    Reply
  2. lydiadeneen

    I agree that income distribution is an issue in the US. When stating “it may not be sufficient to simply tax the rich,” I am unsure if you are proposing further monetary regulations on the rich to offset the unevenness in the distribution? I believe that the rich should not be harshly attacked with taxes and demanded to pay allowance to the government because they have worked hard for (or inherited) their wealth. I think the better approach is raising the bottom line–moving a significant percent of our nation’s income earners above the poverty line. Focusing heavily on education and job creation, especially in inter-city and extreme rural areas, could initiate such redistribution of incomes.

    Reply
  3. sarahtymochko

    While the rich may have worked hard for their money, they have sufficient funds to be able to sacrifice a little more in order to improve the country’s economy as a whole. Everyone could benefit from an improved economy. If we do not tax the rich more how do we pay off debts and continue to help the economy? Those who have inherited money did not actually do anything for their money other than being lucky to have rich relatives. Therefore they definitely could pay more in taxes with very little harm to their own lives.

    Reply
  4. lydiadeneen

    Is it the responsibility of the rich to bail out the government and pay off the nation’s debt? Just because they have inherited or worked for their money does not grant the gov the right to take it away from them. I do believe that everyone should pay their “fair share,” but the rich do not need to pay in excise of their “fair share.” It is not their responsibility to fund the government and erase our debt.

    Reply

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