Question

In: Economics

Myth of income inequality in US Although US is the largest economy in the world, some...

Myth of income inequality in US


Although US is the largest economy in the world, some says it is one of the worst income inequal countries among the industrialized countries and Income inequality in US is not improving.


Q1) Does this claim have any truth in it? If so, discuss it with specific economic data.

Does the new Trump Tax cut make income inequality worse? Does lock-down due to COVID-19 hurt the low-income class more than the high-income class?


Q2) Some says, “In US, the upper class is doing better, the middle class is disappearing and more people are living under poverty.”

If so, what is the social, economic and psychological consequence from growing income inequality?


Q3) Some says US government should do something to reduce the gap between the poor and the rich? Do you agree or not?


Q4) If so, is it a good idea to raise more tax from the wealthy and provide more welfare safety nets to the poor, or increase of minimum wage, or free higher education with Government subsidy or universal basic income?


Q5) Is any better idea of government policy over this matter? since middle class struggles with heavier consumer debt due rising rent cost, medical cost, and education cost, and job insecurity due to automation.

Solutions

Expert Solution

Q ( 1 ) Yes, it is true that income inequality in the US is very high. Wealth and prosperity of top 1% in the country has consistently increased through the years whereas bottom 50% of the population have seen their wealth and income consistently decrease in the last couple of decades.

The graph below shows startling facts about income inequality in the US.

Yes, recent corporate tax cuts have led to even higher profits for the wealthier classes of people in the country and in that way we can say that regressive taxation has intensified income inequality in the country.

Lockdown imposed to contain the spread of the virus hurts the lower income group of people more than higher income people as most of them have lost their jobs, which is their only source of income, due to shutdown of most of the businesses as well as most parts of the country.

( 2 ) The society has started feeling disharmony amongst different classes of members according to their wealth. Distrust and a sense of jealousy has entered people's heart due to such high level of income inequality in the country.

A relatively smaller middle class is also going to hurt the US businesses as well as economy due to fall in aggregate demand in the economy.

The psychological harm to the people has also been immense.


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