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Rechelle Jimenez
Solis
Economics per.⅞
17 April 2018

Inequality White Paper

Introduction to Inequality

The American definition of inequality is the “lack of equality ​or fair treatment in

the sharing of wealth or opportunities” (“Definition…”). Income and/or wealth inequality

is seen especially in the United States and shows a significant separation between the

top 1 percent and the bottom 99 percent. In 2015, the average income from the bottom

90 percent was around $34,000 and the top 0.1 percent made around $7 million (Saez).

According to this chart, the wealthy contribute the most to the United States income.

Income inequality is different people being paid different amounts of money. Income

inequality grows bigger when “[the] earnings are dispersed.” One way on how to

calculate income inequality is to take the tax records of the top contributors to the US

income and analyze how they differentiate from the bottom percent (Yglesias).

Although, income is not the only things that partake in the inequality in America. Wealth

inequality refers to the difference of what people acquire. That refers to things like “an
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owned personal residence and cash in savings accounts to investments in stocks and

bonds, real estate, and retirement accounts” excluding liabilities such as “a car loan,

credit card balance, student loan, mortgage, or any other bill yet to be paid” (“Wealth

Inequality”). In 2013, wealth inequality became greatly dispersed because the bottom 90

percent had the most debt and less mutual funds as the top 1 percent has the least debt

and more mutual funds (“Share of…”).

Income inequality has been a controversial topic which has liberals and conservatives

arguing about what should be done. In a “left” perspective, it is a belief that the 1

percent want the things to stay the same so they get a large amount of income from

“lowering tax rates on capital gains” and manipulating the system in which people

bought and paid to change the rules (Stiglitz). Generally, the solution would be to

redistribute the wealth to the people and to raise taxes on the people with higher

income. In a “right” perspective, inequality is not at its worse because “poverty is

attributable to the choices and actions of the poor themselves” (Tanner). The

conservative approach is wanting to “ lift up the bottom, rather than to bring down the

top” (Garry).
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Why Inequality is an Issue

As most people expect, inequality is a problem that is not going away instantly.

In fact, it will always be around. Income inequality gap in the United States is vast

between the classes which cause people having a hard time making a life where they

are well off. As the gap is becoming wider, it will be harder for the younger generation

because they have a great chance of becoming poorer and poorer. As much as they

want to hide it, the rich do not want to be taxed higher simply just to sustain their current

wealth. They only need so much while the rest of America is falling behind on trying

living comfortably. Uplifting the young generation of the bottom percent while bringing

down the rich respectively is the way to solve inequality, or at least to mitigate it. A way

to lessen the gap is to tax the rich and use that money to make higher education more

accessible to the younger generation of the bottom percent.

Taxing the rich would substantially lessen the gap because it will uplift the

struggling middle and lower class. Lately, the top percent have become aggravated on

the topic of them being taxed. Tom Perkins, a venture capitalist, compared taxing the

rich to “Nazi persecution of the Jews in Germany.” The rich are protective of their

financial status and their size of the income pie. Although the wealthy appreciate the tax

loophole, closing it will “enable targeted tax measures such as the earned-income tax

credit to raise the incomes of the poor and middle class more than dollar for dollar by

incentivizing working and saving” (Berman). The logic is the more income you have, the

more you get taxed. The less income you have, the less you get taxed. The problem
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now is that the rich are being taxed less which means that money that could benefit the

lower class is kept among the ones who have more than what they necessarily need.

People argue that the taxing on the wealthy is unfair and that the new tax bill that

Trump passed was benefitting the middle and lower class. Trump’s Tax Cuts and Jobs

Act decreases “​the corporate tax rate from 35 percent to 21 percent” and drops the top

percent rate will drop to 37 and it “cuts income tax rates” overall (Amadeo).​ ​By the

sound of the bill, it would seem that everyone is benefitted by the tax cutting. The

middle and lower classes would have a chance to have an increase in their income.

Unfortunately, the tax bill was technically only meant for big businesses getting big tax

cuts. The individual decrease in tax rate is only temporary so in “10 years half of all

American taxpayers will be paying more under the Republican bill than they are now”

(Jenkins). It may benefit the bottom 90 percent, but not for the long run. Eventually, the

average taxpayers will pay more than they should while the wealthy continues to have

their taxes come and money coming in; that is unfair. When the idea comes up on

wanting to tax the rich because of their bigger income, they become defensive hence

Perkins (as mentioned before) feeling victimized like the Jewish in the Holocaust.

Taxing the rich can definitely be beneficial in terms of lifting up the middle and lower

class while the upper class is still being in stable condition.

The tax money should go into fixing the education system so higher education

can be more accessible to people who can barely afford it now. As said before, the

economic gap is spreading farther and farther, and that can greatly affect younger

generations as they have a chance of becoming poorer and poorer. The fact that some
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of the schools have a weak curriculum and lack of quality teachers could lead students

to eventually drop out of college or not attend at all (​Kraushaar). According to this

graph, 53 percent of dropouts are not making current payments towards their student

debt and 68 percent believed if they attained their degree, they could have paid their

debt faster (Brown). The government has been acting on education reforms that are

concerning the “educational gap” and wanting to build “an adequate public school

system” to go beyond what Congress has been talking about “speeches and the

minimum wage” (Kraushaar). The future generation growing up in an environment

where they had educational opportunities, there would be no struggle to get the higher

education just like the upper class. With more accessibility into college, the degree that

they earn can lead them to career can release from poverty, debt, and/or inequality.

There is an argument that education makes a small impact on solving inequality.

Referencing Irwin’s article, the Gini coefficient (used to measure inequality) “decreases
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only to 0.55 from 0.57 in this scenario of drastic educational improvement” (Irwin). Irwin

claims that fixing education does fix the problem within the American middle to lower

classes, but does not reduce inequality as a whole “which is driven by the sharp upward

movement of the very top of the income distribution” (Irwin). This all depends on where

the money is coming from. If we tax the top percent at a reasonable amount depending

on their income, the money that would be given to the government can be dedicated to

fixing the education system. With the tax money, the government can dedicate to

helping “students locked in failing schools” by hiring high-quality teachers, strengthening

the curriculum, providing classrooms with advanced technology, etc. Therefore, the

students can go through college without having the extreme stress in dropping out

and/or paying back debt. They will eventually find themselves a career with their

satisfied income that can make them spring out of poverty or any economic struggle.

Using the tax money to improve education will be two in one plan to significantly shrink

the inequality gap.

Conclusion

Respectively bringing down the wealthy by increasing their taxes can help bring

the middle class and lower classes by improving the education system and accessibility

of higher education to bring them out of their economic struggles. Realistically, income

inequality is widely dispersed and it will take a significant amount of time for the gap to

shrink especially with the current President recently decreasing the top percent’s taxes.

As time passes, the lower classes’ voices are getting louder and eventually the federal
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government has to listen. Their voices will be heard and they will no longer struggle; the

struggling will prosper.


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Works Cited

Amadeo, Kimberly. “How Trump's Tax Reform Plan Affects You.” ​The Balance,​ 16 Apr.

2018, www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968.

Berman, Jillian. “Raising Taxes On The Rich Would Reduce Income Inequality: Larry

Summers.” ​The Huffington Post​, TheHuffingtonPost.com, 17 Feb. 2014,

www.huffingtonpost.com/2014/02/17/taxes-rich-larry-summers_n_4804285.html.

Brown, Mike. “College Dropouts and Student Debt.” ​LendEDU​, 16 Jan. 2018,

lendedu.com/blog/college-dropouts-student-loan-debt/.

“Definition of ‘Inequality’ - English Dictionary.” ​Inequality Definition in the Cambridge

English Dictionary,​ dictionary.cambridge.org/us/dictionary/english/inequality.

Garry, Patrick. “A Conservative Response to Income Inequality.” ​The Belltowers,​ 4 Dec.

2014,

thebelltowers.com/2014/12/04/a-conservative-response-to-income-inequality/.

Irwin, Neil. “Why More Education Won't Fix Economic Inequality.” ​The New York Times,​

The New York Times, 31 Mar. 2015,

www.nytimes.com/2015/04/01/upshot/why-more-education-wont-fix-economic-in

equality.html.

Jenkins, Nash. “GOP Tax Bill May Not Help Middle Class.” ​Time,​ Time, 19 Dec. 2017,

time.com/5068961/republicans-tax-bill-trump/.

Kraushaar, Josh. “The Proven Way to Fight Income Inequality: Education.” ​The Atlantic,​

Atlantic Media Company, 7 Jan. 2014,


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www.theatlantic.com/education/archive/2014/01/the-proven-way-to-fight-income-i

nequality-education/282875/.

Saez, Emmanuel. “US Average Income, 2015.” ​Inequality.org​,

inequality.org/facts/income-inequality/.

“Share of Total Assets by Asset Category, United States, 2013.” ​Inequality.org,​

inequality.org/facts/wealth-inequality/.

Stiglitz, Joseph E., and Stephen Doyle. “Of the 1%, by the 1%, for the 1%.” ​The Hive​,

Vanity Fair, 15 Dec. 2017,

www.vanityfair.com/news/2011/05/top-one-percent-201105.

Tanner, Michael D. “Inequality Myths.” ​Cato Institute,​ 14 May 2014,

www.cato.org/publications/commentary/inequality-myths.

“Wealth Inequality.” ​Inequality.org,​ inequality.org/facts/wealth-inequality/.

Yglesias, Matthew. “What Is Income Inequality?” ​Vox​, 2 Apr. 2014,

www.vox.com/cards/income-inequality/what-is-income-inequality.