The income gap in the United States has widened to a level we haven’t experienced since the 1920s.
To take a debate position supporting income inequality from a philosophical perspective would seem patently absurd. Not only is it counter-intuitive, but it goes against societal standards, morals and bedrock principles that helped craft the oft-cited American dream.
However, the fact remains that there are substantial differences with respect to income distribution in the U.S., as well as around the world. We’ve all heard phrases such as “haves and have-nots” as well as “the rich get richer.”
Is that actually the case, and more importantly, what should we do about it, if anything?
Income Inequality in the U.S.
The first question is simple to answer, because everyone above the age of seven knows it’s true: Not only is there substantial income inequality in the U.S., but the gap appears to be widening.
According to the Paris School of Economics, the top income earners have seen their share of overall income lift in a few countries — most notably, the United States. In 1970, the top 10% earned about 32% of aggregate national income; today, that percentage stands at 48%.
In Japan, the differences were less pronounced, but nevertheless still significant: 33% to 40%.
In Portugal, the percentage nearly doubled.
In Canada, the dial barely moved at all.
For the highest-income households, 2012 saw even more substantial and pronounced expansion, as the top 1% saw theirs rise by 20%, whereas the remaining 99% of the population experienced a collective 1% increase.
Although many factors are involved with respect to income distribution, economic growth, government spending and changes in tax rates arguably play the largest roles.
- Economic growth: President John F. Kennedy famously said “A rising tide lifts all boats.” Although true, the fact remains that in gross dollars, higher-income earners benefit more than lower-income earners.
- Government spending: Overall wealth has been augmented by government spending and monetary policies for decades, with the net result being fewer recessions and longer growth cycles — not to mention massive deficits. Furthermore, supply-side economics has been periodically employed, which specifically target corporations, investors and entrepreneurs under the theory that ultimately, everyone benefits.
- Tax rates: Lowering the marginal tax rates for the highest income brackets has directly led to greater wealth creation for the upper quintile and, as supply-siders would argue, the economy as a whole.
The debate over the interrelationship between the three and which has the most impact on income inequality could be argued at length, but perhaps the clearest correlation can be seen in marginal tax rates.
During the Reagan administration, the top marginal tax rates were slashed nearly in half, from over 70% to just under 40%. At the very same time, the percentage of overall income enjoyed by the top 10% started its inexorable climb.