Question

9.) Taxation, Distribution of Income and Resource Allocation

The United States declared a “War on Poverty” in 1964, and within a decade the fraction of families below the official poverty line had dropped substantially. Today, the richest 20 percent of households receive more than 50 percent of the income, whereas the poorest 20 percent of households receive less than 3.5 percent. In what ways do individual incomes differ? Why has the poverty rate increased since the 1970?

Answer 1

The individual income differs when people in the lower part of the distribution of income have been receives a small total income's share; and people on very top position receives the larger share in the share of total income over time. In United States the inequality in income is exceptionally high and has been rising since the last four decades, with median household income growing at nearly constant rate compared to the incomes for the top 10%. The wedge between growth of productivity and wage has driven it; most especially by a fall in bargaining power for employees, is what is contributing all the extra income at the top. Moreover there was a political, cultural, and legal environment which kept a lid on compensation of executive in all economic sectors.

During the 1970s, prices in United States were increasing fast. In other words, inflation in America was running rampant, often thought to be the result of the oil crisis of that era, government overspending, and the prophecy of self-fulfilling higher prices resulting to higher wages leading to higher prices. the value of US currency compared to other currencies degraded to the point that our reserves in gold were more valuable than the currency. A gold standard severely constricts the economy's ability to expand, and effectively guarantees nearly permanent deflation, making spending increasingly tougher over time that freezed the money flow; and consequently the poverty rate increased