Category: Income Wealth Gap

The Problem of the Wealth Gap in Contemporary American Society

America, the land of plenty, has always experienced an abundance of wealth, but has the unequal distribution of this wealth become our downfall? It’s easy to see that people in the United States are getting richer. However, a fraction of the wealth is becoming an issue towards the less fortunate. According to the film ‘Inequality for All’, Robert Reich exhibits the issues concerning the wealth disparity that lies between the upper and lower class in America and notices a significant pattern. Reich, using statistical data and figures, recognizes economic trends that have brought us massive wealth inequality and also seeks for possible solutions to the unbearable pattern for the generations to come. Reich also announces that the gap between the rich and the poor is steadily increasing to where the 400 richest Americans have as much wealth as half of the entire US population. This widening disparity is becoming a major threat to the families in poverty. The wealth gap has gotten so out of control that low income families are struggling to a point that is affecting their ability to receive quality health care as well as invest in higher education.

Wealth inequality is often considered to be an enormous difference in value between the upper and lower classes. One of the significant factors that contributed to the difference is the economic recession that began in 2007 and ended in 2009. During this great recession, millions of employees were being let off by major corporations, which essentially widened the gap between the rich and the poor. Nonetheless, families were devastated from the fall of opportunity and lost a majority of their life savings to care for themselves. In regards to the high impact of such a large wealth gap today, it is also difficult to understand how the wealthy became tremendously richer and why the lower class didn’t exceed as much. After the great recession, the economy took a turn with online companies such as Amazon accruing massive amounts of earnings. With a few stops and starts, the stock price of Amazon continued to rise. Jeff Bezos, the CEO of Amazon, led his company right through the burst of the dot-com bubble at the start of the twenty-first century to become a huge player in the game of online sales. The company did extremely well and reported to attain “$24 billion in annual revenue, from their 2009 year-end financial results”, making Bezos the richest man in the world (Treanor 1). Taking into consideration the amount of wealth Jeff Bezos possesses, it would be reasonable to claim that his accruing income only widens the inequality gap by a large degree.

Indisputably, numerous economists today have proved their visions of the massive wage gap; however, they have failed to find a prominent cause to the problem. It is difficult to assign the blame on one source, because the problem isn’t just one issue. For instance, some researchers have concluded that the “progressive income tax is likely to be an impractical measure for affecting wealth distribution” (Berman 15). Low taxes are initially perceived to be the most common reason why the upper class is getting wealthier, however, researchers are having a hard time proving it. More than that, it is equally significant to consider that imposing higher income taxes won’t benefit the poor any greater. Another valid source of data is the current report called ‘Wealth in America: Trends in Wealth Inequality’, that showcases prediction models of the gap between the rich and the poor. During the growth period of the economy, the article reveals that “Despite increasing stock ownership among middle-class families, the benefits of the stock market boom were mostly enjoyed by the wealthy, whose portfolios consist of a large share of high-risk assets”, which essentially means that the rich profited greatly because they invested more of their wealth (Western). This kind of situation is difficult to control as well as prevent, therefore, it is affecting a multitude of wealth inequality in America.

As a result of the widening disparity, many lower and middle class families are having difficulty financially supporting themselves as well as improving their standard of living. Ideally, one of necessary methods to overcome poverty for these families is through higher education, however they are unable to afford it due to the rising costs caused by the disparity. Lael Brainard, a member of the Federal Reserve’s Board of Governors, discusses the impact in a speech by saying, “Many households find it challenging to make key middle-class investments because incomes at the middle are not keeping up with the rising costs of education and homeownership, and it is difficult to save enough” (Rugaber). She simply reflects on the wealth gap and claims that it is highly affecting the middle class families who are trying to send their children off to college so they can earn a degree. This contributing aspect of the widening disparity is only making matters worse for the ones who are unable to afford it. The cost of attending universities has gradually increased and the national student debt has risen to over $1.41 trillion in 2019, which is an increase of 8% since 2018 (Kurt). Even though a fraction of low income families can afford higher education for their children, they wouldn’t significantly benefit as much from it as the rich. ‘The Effect of Wealth Inequality on Higher Education Outcomes: A Critical Review’, examines the underestimated aspect and proclaims that, “poor children enter the educational system without the power to make the system work in ways that advantage them” (Rauscher and Elliot). This means that higher education for students who come from low income families, would be less beneficial to them than the education acquired by the rich because of the inequality in wealth. In addition, low income families are suffering from this because they are unable to acquire any needed health care. According to Nicholas Birdsong, a Policy Specialist with the National Conference of State Legislatures, “A defining feature of economic inequality, is a less effective lower-income work force, higher disease and mortality rates, higher health care costs, and progressively deepening poverty for afflicted groups”. Birdsong’s claim, justifies the increased health care costs in which the poor can’t afford. Furthermore, lower income families who are unable to afford the quality health care are at risk of, “a less effective workforce, higher mortality rates, higher life insurance premiums, and a less prosperous economy” (Birdsong). These underlying effects of the wealth gap have become a major threat to the way of life for lower class civilians.

Wealth disparity is vast and growing by the day though, there are undoubtedly many valuable issues that arise from it involving the health care and education of lower income families. In ‘Inequality for All’, a documentary presented and narrated by Robert Reich, Reich discusses what’s happening in terms of the distribution of income and wealth within the US, as well as the controversy and issues that develop from it. Reich also announces that forty two percent of Americans who are born into poverty remain poor, and it’s significantly accurate. This disparity, which widened after the great recession between 2007 and 2009, has become a major threat to lower class Americans as a result of the rise in costs. Nowadays, a solution for low income families to escape poverty and shrink the gap is through a diploma; however, with the underlying issue of affordability caused by wealth disparity, it doesn’t seem possible. Not only is it affecting their opportunity to get a decent paying job, it has also impacted their ability to acquire decent health care. Low income families are substantially unable to support themselves because they find quality health care to be unaffordable. All and all, there doesn’t seem to be a way around the wealth gap thus, lower income families will continue to suffer with health care and education costs because of it.

Income Gap and Unhappiness

The income gap is when the gap between the wealthy and the poor is very big. This is an issue that is still affecting many people to this day, it is an economic impact that many people have to face. However, the income gap does not only stop at being an economic issue, but it could also have a political and social impact. For me, I take the stand that the income gap causes an unhappy society. The income gap especially makes it harder for people who are of the low middle class to survive and so this affects them negatively. Thus today, we will be discussing both the negative and positive stands, to further expand our knowledge of the issue.

The first reason why the income gap causes unhappiness is that, goods become too expensive and soon many people would not even be able to afford those goods which would make it difficult for them to support their family. As the income gap increases, the higher class will get wealthier and the prices of items sold at stores would increase to cater to the higher class’s wealthiness. This happens because, since, the rich become filthy rich, they would be able to afford very expensive things and would keep buying those expensive things. People tend to buy luxurious goods as they see cheap goods in a negative light. Additionally, they see luxurious goods as something to show their status and it boosts their self-esteem. Thus, because the rich can afford all these expensive things, they would buy a lot of them. Which then leads to stores increasing their prices so as to earn more profit. However, because goods increase in price to cater to the higher class, it becomes too pricey for even the upper middle class to afford. It would make the cost of living too high. Many middle to lower classes would have difficulty supporting their families and their lives would be made harder because of financial issues. With severe financial issues comes unhappiness because of the constant worry of how they are going to survive when they do not have enough money to continue living. It affects the poor severely. Therefore, as goods increase in prices, the cost of living will increase which will bring forth unhappiness due to the constant stress and anxiety of not being able to keep up with the cost of living.

The next reason why the income gap causes unhappiness is that, with the gap increasing, people will tend to feel envious towards their peers, unfairness or they would even develop an emotion of distrust. Unhappiness does not just come from lower wages but it also comes from the negative emotions that people will feel regarding this issue that is very prominent in many countries today. As the rich get richer while the poor get poorer, unhappiness becomes very prominent. A study was conducted in America where 50,000 responses were taken accounted for. The research shows us that Americans have not been the happiest for the previous 4 years when the gap between the rich and the poor was very high. The income gap affects people negatively in a way where they constantly look at their peers and feel jealous that their peers are making more than they are. They will feel envious that their peers would be able to lead such good and happy lives without worrying about their financial status as much. With all of these negative emotions that they are constantly feeling, it would lead to a decrease in unhappiness. Therefore, because the income gap makes people feel envious, unfairness, and distrust, it decreases their happiness in general. These emotions bring down their mood entirely. Thus, leading to an unhappy society.

In spite of all that, the first reason why the income gap does not affect the happiness of society is that, money does not affect a person’s happiness. Even though, people may feel upset that they have a low income or if their peers have a higher earning than them, happiness comes more from just materialistic things. Happiness is usually based on the things that they have experienced. The memories that they have, like spending time with their loved ones or when they have won an award after all their hard work. Therefore, even though they might feel jealous of others for having a higher income, it does not affect their happiness. If this were to be how the satisfaction of one is with their lives and how the income gap affects that, then yes, an income gap can cause them to feel unsatisfied with their standard of living but, as mentioned before, happiness will not be affected.

Lastly, the income gap does not cause unhappiness in society because, the income gap does not affect the happiness of society especially for the richest 20%. The richest 20% were not affected by the income gap. They do not feel unhappiness, distrust, or unfairness.

Wealth Gap Between the Rich and the Poor in Australia

Similarly, in 1901, every Australian had the right to vote, however in 1902 Aboriginal and Torres Strait Islanders were not allowed to vote in Federal Elections until 1962. They were also not considered in the census until 1967 (Australian Electoral Commission, 2017). A White Australia Policy was employed in 1901 and it was not entirely eradicated until the 1970’s. Non-white Australians and women who worked were often viewed as a risk. As a result, they were paid significantly less, which created a wage gap between women and men. This unequal and injustice treatment is still continuing in today’s society.

In contrast, Australia has shown to be egalitarian through its protection laws. Protectionism in Australia such as high tariffs have increased import prices which have made products more expensive thus, creating a more equal society as it encourages more employment. Nonetheless, this can interrupt the global supply chains which affects customers, goods and employees. During the 1960s, the Menzies government introduced that government financial grants will be given to non-government schools. The public educational systems would offer free secondary education to students in Australia of the new century. Thus, egalitarianism, to an extent, has been developed in Australia overtime.

Inequalities are detrimental to society because individuals with low incomes and wealth struggle to achieve a socially moderate quality of life in order to partake in society (ACOSS, 2018). This encourages segregation in Australian society. When excessive inequality arises, it disadvantages the economy because when people are too underprivileged to contribute successfully in the paid workforce, economic growth decreases. The main way to measure inequalities are through the Gini coefficient which measures the distribution of income and wealth among a population. Income inequality is defined as a measure that shows the difference between different individuals’ or families’ disposable income in a particular year. It is evident that income inequality still occurs in today’s society because the highest 20% of Australians living in a house have five times as much income as the lowest 20% (ACOSS, 2018). The decrease in unemployment and unequal growth in wages contributed to the rise in income inequality from 2000 to 2008. On the other hand, wealth inequality is the unequal division of assets within different groups of people. The wealthiest 20% own nearly two thirds of all wealth, while the lowest own just 18% (ACOSS, 2018). Wealth is crucial to many life opportunities as it encourages more income and upholds it when individuals are incapable in on-going paid work, by producing investment revenues. Wealth inequality is much higher than income inequality in Australia and is presently still increasing. Due to wealth accumulating from former income leading to potential revenue, high amounts of wealth inequality can intensify overtime. This confirms that Australia is not as egalitarian as people perceive it to be.

Reports based on the Australian Bureau of Statistics indicated a significant expansion in wage inequality across workers since the late 1970’s (Parliament of Australia, 2018). Crucial features that have pushed this event in occurring are technological changes including advances in IT that have improved business practices. As a result, significant wage advances have developed for some high-skilled workers, whereas low-skilled workers are receiving minimal wage leading to an increase in segregation (The Conversation, 2018). Globalization has resulted in a rise of job opportunities. This has further allowed for low-skilled workers with a seemingly lower salary (The Conversation, 2018). Professor Ronald Henderson conducted a survey in the 1960’s which examined living conditions by using a poverty line population (Parliament of Australia, 2018). He investigated that one in sixteen of Melbourne’s population was living in poverty. According to the Henderson poverty line, poverty rates have increased up to 23% of the population (Parliament of Australia, 2018). Evidence by the Parliament of Australia (2018) about impoverishment has revealed that poverty mostly occurs between particular groups such as Indigenous Australians, the unemployed and individuals who are unable to manage without social security benefits (Parliament of Australia, 2018). Indigenous Australians are more liable to poverty due to high levels in unemployment, low levels of academic schooling, poor well-being and insufficient housing.

Since the 1980’s, Australia has had a significant gap between the rich and the poor and is continuing to widen today. Globalization has had both a positive and negative effect on Australia, thus causing individuals to have their own understanding of egalitarianism. Before the 1980s, Australia was a classless civilization where there were no strong distinctions in wealth gaps. However, in today’s society, the Guardian informed that the highest 1% of Australians own more wealth than the bottom 70% combined, evidently demonstrating the wealth gap in Australia (Hutchens, 2018). Pilbara is a regional area in Western Australia where globalization has had a huge impact on egalitarianism. Pilbara is a place used for mining and has expanded over the past 20 years. The mine produces iron, natural gases and oil which is mostly traded from other countries due to globalization (Pick, Dayaram & Butler, 2010). A big gap has been formed between the people who work in the mines and the people who do not (Pick, Dayaram & Butler, 2010). Hence, certain groups such as local industries battle to survive since they are incapable in paying their employees the appropriate funds they need, instigating unemployment and a rising wealth gap in this area (Pick, Dayaram & Butler, 2010). Although globalization causes more job opportunities in this region, it also minimizes employments and develops unemployment for people who require it the most for survival. This validates that globalization has a significant consequence on how people view Australia’s egalitarianism society.

One main domestic reason for the inequalities in Australia is due to private school funding. A report discovered in 2016 indicated that 85% of private schools obtained more public funding than public schools (Australian Education Union, 2018). The inequality is due to a significant rise in Commonwealth money as the families who pay for their children to attend private schools have more money to educate them. It is based on their socioeconomic status thus, the federal government primarily funded private schools (Baker, 2019). Prime Minister, Scott Morrison had abandoned Australia’s 2.5 million public school students because his proposal did not consist of a ‘fair go’ to school funding (Australian Education Union, 2018). Morrison’s approach was that overfunding private schools would produce lots of money for the wealthiest schools and they would be able to spend it any way they wanted (FairFundingNow, 2019). Nonetheless, all children deserve equal funding and opportunities because cutting public school funding contributes to a decline in funding for students with disabilities, disadvantaged backgrounds or those who come from Aboriginal and Torres Strait Islander backgrounds (FairFundingNow, 2019). This validates the inequality for school funding in Australia and demonstrated that Australia is not as egalitarian as it appears to be.

Stable and affordable housing is central in encouraging work opportunities and welfare by allowing social and economic contributions in society (Haylen, 2015). Housing affordability in Australia has depreciated overtime since the early 1980’s. Certain groups including low-income earners and individuals with no rental history such as recent migrants, have encountered particular barriers to accessing cheap rental housing through the private market (The University of Sydney, 2019). The increasing difference between income and rental price growth has damaged the affordability of earlier accessible rental houses for low to middle income earners. Statistics from the Family and Community Services advise that there are 271,000 lower income households in rental stress in urban Sydney (The University of Sydney, 2019). Australian Housing and Urban Research Institute data displays that a further 130,000 households in NSW are unable to access reasonable rental housing. As a result of increasing house prices, the Australian Bureau of Statistics indicated that the projected amount of average weekly household spending on current housing increased from approximately 12.8% to 18% (The University of Sydney, 2019). This increase is partially due to fluctuating societal preferences, with some families preferring to put most of their budget into a greater or more comfortable home. Therefore, this does not create an egalitarian nation as people with lower social and economic wealth should not be unable to access affordable housing, when those who encompass a higher level of capital have countless opportunities in populated areas.

In conclusion, Australia is often represented as a classless society where each person is expected to get a ‘fair go’, however some individuals believe otherwise. This is because some of Australia’s policies have created an unequal division between the rich and the poor people. These inequalities are measured by the Gini coefficient which measures the distribution of income and wealth in a population. Since the 1980s, Australia has had a significant gap between the rich and the poor and is continuing to widen today. Globalization has had both a positive and negative effect on Australia, thus causing individuals to have their own understanding of egalitarianism. Many people believe that because of Australia’s mateship and respect towards each other, that it is an egalitarian society, however I have proved that this is not entirely accurate throughout the essay.

Strong Inheritance Tax as a Possible Solution to Growing Poverty and Inequality

Poverty is an increasing issue in modern day that stems from wealth inequality. Families that hold wealth throughout generations are making an increasing gap in income in the United States which is making the poor even more poor. Poverty can have several negative effects on a person’s long-term health, including heart attacks, inflammatory diseases, and even can attribute to a premature death. While some argue that a more aggressive progressive tax is the best way to solve things, the most ethical solution to this problem is to use a strong inheritance tax in order to return money back into circulation by spending it on schools. This will shrink the inequality gap and reduce poverty through education.

After the World War II, the country was flourishing with economic growth. People were all able to share the new wealth pouring throughout the country. However, the 1970’s came and economic growth started to slow and the inequality gap took off due to some policy changes relating to taxes. The way inequality is measured is through the Lorenz curve. It measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution. In the period of 1979 to 2016, the Gini coefficient in the United States has grown from 34.6, to 41.5. This data very clearly shows that this problem is prevalent and needs to be acted on, as it significantly reduces the enjoyability of life for the lower class.

Poverty has been shown to significantly and negatively affect the long-term health of those affected by it. Living in poverty means eating lower quality foods, living in polluted air, and not being able to afford good health care. Low quality foods usually contain high amounts of carbohydrates and processed grain which can lead to obesity and diabetes. Polluted air can cause poor brain development in children, cancer, and other lung diseases. Poor access to health care can allow preventable diseases to go unnoticed and develop for the worse.

Inequality targets low-income families the most because the governments financial support is generally given to older people. “Those over 65 have weathered the past quarter-century much better than families with children, despite two major recessions. The net worth of older people’s households increased by 45 percent from 1989 to 2013…Families with children fared worse as a group. Overall, their wealth declined by 56 percent in the same period. Wealth inequality for these households grew significantly from 1989 to 2013. The top 1 percent saw their wealth increase by 156 percent, while parents in the bottom half saw their wealth shrink by 260 percent”. Households raising children are having trouble paying for their children to go to college. This isn’t only a threat to their future; it also affects the future of the economy. Without and educated and well-trained workforce, the country will see a reduction in its real gross domestic product.

What a solution to this problem would look like is an increase in education spending which would give all the people of the United States a fair chance at being successful in the long run. Funding would be given priority to low-income areas first, then distributed to all schools in need. Money would go to teacher salaries, utilities, and food for kids that cannot afford it along with school supplies and other necessities that low-income families cannot provide. This all sounds great, but the tricky part about finding a solution is figuring out where to get the money to fund it. There are multiple paths that could raise a small amount of funds, but only one solution that will be introduced later that could solve Income inequality and poverty.

A possible solution to the growing problem of the wealth gap is a more aggressive progressive tax. This would take money from high income persons by using in income brackets to decide how much of their income will be taxed by what percentage. This is the most common idea when it comes to solving the issue, but it is immoral in some ways. There are several people that would be taxed that are being paid proportionally to their job’s value in society, but as the brackets move more towards the hundreds of millions, it is hard to imagine any occupation being worth its yearly salary. In order to efficiently and morally install a working tax, the majority of money should come from the 0.1% of the income spectrum by taxing 90% on the portion of the person’s income that exceeds the big buck border. These days, it is next to impossible to install a system like this when politics are so influenced by wealth in business, especially with a Republican president in office. When Alexandria Ocasio-Cortez, an American politician and member of the Democratic Party presented the idea for a 70% marginal tax rate for the income accumulated after ten million dollars, she was met with hate and foul speech. This goes to show that this approach to the problem would need revision, or a plethora of additional support.

The best idea for raising money for schools is an inheritance tax, in addition to a less aggressive progressive tax. An inheritance tax would cycle the piles of wealth accumulated by billionaires back into the economy. Currently, the wealthiest people in the world cannot possibly find ways to spend their earnings, so it gets passed on from generation to generation. In the current state the money is just being ‘sat on’, it stays in a bank or is invested in order to grow itself even larger. If this money was aggressively taxed, it would reintroduce merit for those who would usually thrive on the billions of dollars passed down to them by their parents.

This tax would not affect the low- or middle-class citizens as the bracket would be set around 10 million. After that, the inheritance could be taxed anywhere from 80-100%. There is little room for argument that this is immoral because the recipients did not do anything to actually earn the money. The currently ‘estate tax’ will only tax – after 11.4 million dollars, which is more than any individual would ever need to live off. A tax on money practically given as a gift is much more ethical than a progressive income tax. Instead of taking away money that people earn, it targets money that is leftover and returns it into the economy.

The problem of wealth inequality is a worsening problem that affects families by keeping them in a cycle of poverty. It is caused by greed from people who would rather watch the hard-working American people struggle to make enough to put their kids through college, than give up some of their billions of dollars. The solution is to increase the quality of education in the country in order to better educate the workforce and allow each to earn a higher salary. The funds for this will come from a stronger inheritance tax. This will improve the overall health of society for years to come.