Question

You are appointed as a special commissioner on inequality to give policy recommendations to the federal government to reduce wealth and income inequality in the US. Think of one mechanism you might propose to reduce inequality, and tell us about it. Feel free to be creative, think big, and don’t (initially) concern yourself with the political feasibility of the mechanism. After describing it, tell us: Who benefits? Does anyone lose? How is it perceived by different sections of the American public?

Answer 1

One mechanism to reduce the wealth and income inequality is taxation policy, where, people below the certain income level, should have no tax to be paid. Further, people with higher income should pay tax on a gradual basis. This policy, will help increase the disposable income for those who are poor and earn a certain level of income and it will reduce the disposable income of those who are the wealthier. Hence, it will reduce the wealth and income inequality between the different class of people. The government should regularly review the policy over a period of time so that necessary adjustment is done with the change in the demographic profile of the population belonging to the different classes.

The poor people and or people below a certain income level, will be benefited, as they do not have to pay taxes and their disposable income has increased. Wealthy people will feel that government is putting higher taxes to them and they will feel to lose a bigger amount of taxes to the government in an effort to help poor.

In those sections of the population, where the people earn lower than the average income, will feel good and encouraged as their tax payments are mostly waived, and they can increase the spending. In contrast to it, people with higher income, will feel to be lost due to the government policy as they may have to pay higher taxes as their income grows.