HLA Economics on Income Inequality in the USA

In September 2011, hundreds of protestors occupied Zuccotti Park in New York’s financial district highlights the rising economic inequality symbolized by Wall Street banks and investment firms. The Occupy Wall Street movement spread nationwide with the chant, “We are the 99%.” In this phrase, protestors summarized the stark reality that 1 percent of the US population owns nearly 40 percent of the nation’s wealth (BGE). While the US has historically prided itself as the land of opportunity, the economic gap between rich and poor and rich and middle class is widening. Both Republicans and Democrats alike are looking for ways to shrink this economic divide, as the future of our country is at stake. To reduce economic inequality, the US should increase the minimum wage and raise taxes on the super-rich.

In order to reduce economic inequality, the US should increase the minimum wage and raise taxes on the super-rich. The US should increase the minimum wage from $7.25/hour to $10.10/hour. This increase would raise the income of almost 30 million workers and would create a boost to the economy as a whole (Doc D). How can a $2.85/hour raise have such a big impact? It occurs because when the minimum wage increases, overall economic activity also increases. The lower-wage workers who receive
higher wages are the most likely to spend their earnings immediately. This means that more money will be circulating in the economy, spurring further growth (Doc D). Additionally, the real value of the current minimum wage of $7.25/hour has steadily declined since 1968 (Doc C). In other words, a minimum wage worker today has less purchasing power than a minimum wage worker in 1968 (Doc C). True, an increase in the minimum wage might cause some employers to lay off workers, but this has not deterred countries like France, Canada, and Japan, all of which pay higher minimum wages than the US (Doc C). To remain a country known for its upward mobility, the US should raise the income of our poorest citizens.

The US should also raise income taxes on the richest 5 percent. Income tax rates for the super-rich have dramatically declined since the 1960s, while the rates for the middle class and poorest Americans have remained relatively steady (Doc F). The income taxes on all Americans are relatively low compared to those in other developed countries like Germany and Belgium (Doc F). Taxing the top 5 percent at the highest rate would bring an extra $250 billion into the economy. This additional revenue could support Americans wanting to go to college, pay down our national debt, or improve major highways in the US (Doc H). While raising taxes on the richest 1 percent might have a limited initial impact on inequality (Doc G), the additional money would greatly increase the opportunity to go to college (Doc H). A college education is a key to reducing economic inequality. In a recent study by a Harvard professor, 5,000 Americans were asked how wealth should be distributed across the US population (Doc A). They were shocked to find out that

the richest 20 percent of Americans didn’t own 40 percent of the wealth as they had predicted (Doc A). Instead, they own 88 percent of the wealth. The flip side of this alarming statistic is that the bottom 40 percent of the population owns much less than 1 percent of the wealth. In the US, the poorest Americans “are down to pocket change, and the middle class is barely distinguishable from the poor” (Doc B).

With a proud history of economic opportunity and mobility, the US needs to fix the growing economic inequality by taking the necessary steps to return us to prosperity—not for just the few, but for the many.