Question

What is the current level of income inequality in the United States? What do you think is more important to focus on when considering inequality: income inequality or wealth inequality? Justify your answer.

Answer 1

One of the parameters on which income inequality is measured is the Gini index. According to the US Census Bureau, the Gini Index of income inequality using money income was 0.486 in 2018. The same using Equivalence-Adjusted Income was 0.464. A Gini index reading of 1 indicates perfect inequality.
Also, data by Inequality.org (of the Institute for Policy Studies, Singapore) shows that over the past five decades, the income for the top 1% has nearly doubled, while the official poverty rate has almost remained the same.

The more important aspect to focus on should be wealth inequality rather than income inequality. Gini index measures net income, so net worth of Americans could be more worse. Imagine there are three people in a country and all are earning $100. But one person has net worth of $1000. The GIni index, in this case, would be 0, but it does not mean there is no inequality in the share of wealth across the population. In the real world, rich people use financial schemes to minimize their taxable income and hence, their net worth increases even more. Also, people who hold non-dividend paying stocks may show that they have low income, but actually their net worth is high.

Wealth has a tendency of being transferred from one generation to another. And if wealth inequality is not addressed, inequality can persist for very long.