Wealth Inequality in the United States: Causes and Solutions

Wealth inequality is an important issue in the United States. The gap between the wealthy and the poor has grown exponentially over time, creating a situation that many people call unsustainable. Wealth inequality can be analyzed using three different lenses: income, net worth, and consumption. Income refers to total earnings before taxes; net worth reflects accumulated assets minus liabilities, and consumption covers goods and services purchased by households during a certain period of time (usually one year).

Wealth Inequality Over Time

As of 2015, the top 10% of households control 76% of all wealth. The bottom 50% have just 1%. The top 1% owns 40% of the income and controls 95% of the country’s financial assets, while the bottom 50% earns just 3%. It is not sustainable for our economy, which relies on consumer spending to keep it afloat. Many people don’t realize that many factors contribute to this problem and many possible solutions.
The United States is the richest country in the world. We have some of the most successful people on earth living among us, yet we are ranked number 20 out of 27 industrialized countries regarding income inequality. Why do so many Americans live at the poverty level? How can we solve wealth inequality in this country?

Difference Between Wealth and Income

Wealth is different from income. Wealth refers to the value of all assets owned by a person minus any debt, including homes and other real estates, cash in bank accounts, stocks or bonds held outside retirement funds, business interests not already included in another listed asset on the balance sheet. Income includes salaries received for work done during a given period before taxes are taken out (in this case yearly), dividends from invested capital gains accrued over time that have yet to be paid out in actual money form. The fact most people do not accumulate wealth no matter how much they earn has less to do with what they spend their earnings on than it does with where their income comes from. Even if your salary goes up every year, you will still likely accumulate little wealth if you spend all of your income. In the USA, top earners gain more from capital gains than they do from wage growth. With a highly unequal distribution of assets and incomes in America today, it is not hard to see why many people have no real financial security while others accumulate millions throughout their lifetimes.

Causes of wealth inequality in America

There is a significant disparity between the wealthy and poor in America. Many experts attribute this to differences in education, family structure, work ethic, and risk-taking behavior.

A study done by PEW Research Center shows that income inequality has grown significantly since the 1970s. Those at the top of wealth distribution have incomes nearly double that of four decades ago, while those on the lower end are only earning slightly more money now than forty years back. This considerable change can be attributed to many factors, such as changes in the tax system, which favors the rich over others, or a rise in debt levels due to easy credit access offered by financial institutions.

Other reasons include a high unemployment rate, low minimum wage, and tax cuts to the wealthy. It is also the result of companies offering lower salaries to new employees than they pay current ones and how many families inherit wealth from previous generations.

Solutions to Fix Wealth Inequality

The first step to solving wealth inequality recognizes its root causes so we know how best to address them.
In recent years, income inequality has been a hot topic of discussion across all social platforms. In fact, President Obama even mentioned it in his January 2014 State Of The Union Address. But what causes this growing gap between the haves and have nots? There are many factors to consider here, but one major contributor is undoubtedly the unemployment rate.

High Unemployment Rate

According to some estimates, almost 50% of Americans live paycheck-to-paycheck without any emergency savings whatsoever. Only by meeting their monthly expenses can people start building wealth, which might be one reason why over 40 million US citizens currently carry credit card balances from month to month.
Another reason is that people with higher education, more skills, and better jobs make up a small population. So it’s no wonder they can contribute more to their retirement accounts and accumulate wealth faster than those who don’t have these advantages.
In addition to this, real income growth has stagnated for middle-class Americans – or even decreasing in some cases – which means it takes longer for them to save enough money for investing (buying stocks) or paying off debt such as mortgages. In fact, according to US Census Bureau, median household income was $51,017 back in 2013 compared with $56,134 before the Great Recession hit.

Guaranteed Minimum Income

A system of government assistance that guarantees citizens minimum financial support. The program would replace welfare and other social safety nets with one cash payment to all country’s low-income people. Studies show it could reduce poverty by 25% during increasing national productivity, innovation, and entrepreneurship because workers aren’t afraid of losing their jobs due to automation or offshoring. It also doesn’t discriminate against immigrants like many sources of US aid do (e.g., food stamps). However, there are significant issues such as lack of funding for the plan and political opposition from conservatives who believe it is too expensive and will discourage work effort among poor families.
Employees can live on their salaries only if they save some money from what is left after expenses (which isn’t much). However, many still struggle with bills that exceed budget month by month regardless of how hard they work. As a result, people who still live in poverty are forced to take any jobs at all, even if it is degrading or dangerous for their health.

Include Progressive Tax Rate

People with $250K+ income had a share of 37% to 50%. It is incredibly high, and it’s not just about them making more than anyone else. It’s because their money has accumulated over time as they earned dividends from stocks or interest on bank accounts that were invested well. And companies have rewarded this group too for holding on to shares instead of selling, so fewer shares are available on the market, which drives up prices even higher. That is why some people who earn low-income salaries do not seem to be able to catch up no matter how hard they work and save – if you’re poor, your salary does not increase at all, but costs of living keep going up. Thus, the gap between rich and poor grows.

Social Mobility

Social mobility creates the same issues as low minimum wage and high unemployment rate. In addition, people cannot afford proper education without parental support, resulting in a bad standard of living, leading to poor social status over the years (even generations). This vicious circle keeps families and especially children, trapped with no way out. As a result, poverty becomes an “inherited disease” passed from one generation to another.

Tax Cuts

– Since 1980, the top marginal tax rate has dropped from 70 percent to 35 percent.

– The estate tax used to be 55% in 1977 and now it is only 40%.

– A capital gains tax cut goes disproportionately to wealthy Americans since they are more likely than others to have assets that generate a large share of their income.

They also went down for corporations which led companies like Apple to hold $252 billion outside the U.S., avoiding taxes on over $200 billion of profit intended for investment in America or return to shareholders. These profits were kept abroad because bringing them back here would result in higher corporate tax rates. Instead, when these funds are brought home, there will probably be lower debt costs as the tax rate on foreign profits is only 15.35 percent. Capital gains taxes were also reduced to encourage people to save more which would help grow the economy. However, most of that money goes into financial assets instead of spending through investment or consumption, which can harm economic growth.

Tax Cuts & Job Act

Taxes are low for wealthy Americans but high for poor and middle-class families because payroll taxes account for 40% of all federal revenue. It means that lower income individuals pay a higher proportionate amount than wealthier citizens who tend not to be employed, so their wealth accumulation will come from investments making them less likely to be affected by payroll taxes. The burden has gradually shifted away from corporations to individual taxpayers since the 1970s, when corporations’ top income tax rate dropped from 48% to 35%. A study by the Congressional Budget Office found that federal taxes (income, payroll, and other) on families in the middle of the U.S.’s distributional spectrum were 18 percent lower than it would have been if historical patterns had continued. In contrast, taxes on America’s poorest households rose slightly. For example,t a family earning $50,000-$75,000 is paying more federal taxes today than they did 20 years ago. In contrast, incomes over $500,000 only pay about one-third of what they used to be taxed back then, according to the analysis done by The New York Times.

This has led some economists, Paul Krugman, to argue that American wealth inequality comes from changes in tax policies that favor the wealthy.

According to a business insider, Wealthy Americans are receiving more money back on their taxes than ever before due to Bush’s tax policy changes. For example, The top 20% of earners were getting about 65 percent of all refunds until 2013, when they started receiving 81 percent, which is $227 billion refunded every year. Unfortunately, it means less revenue for public programs such as Medicare and Medicaid since these monies would be used instead if they weren’t spent through lower income families’ refunds. Therefore, according to Newsweek analysis, federal deficits have increased because George W. Bush cut revenues by trillions while spending has remained essentially unchanged.

Final Words

The United States has long been one of the wealthiest countries in the world, but this is no longer true. America’s wealth inequality problem stems from many causes, including our education system and tax policies. To fix it, we need to make changes on both the national and individual level by providing better educational opportunities for all children regardless of their socioeconomic status or race; reforming how taxes are collected so that wealthy individuals pay more than just what they owe at present; implementing an inheritance tax that would be paid when assets pass to family members who inherit them after death; raising minimum wage rates higher than $7.25 per hour until everyone is making enough money to live without having too many financial worries; getting rid of loopholes in-laws.

More From George Mandell: Democrats Midterm Strategy

George Mandell

George Mandell Consultant: Public Policy, Political Campaigns. Conservative / Liberal. I believe conservative principles: Clean air, water and land; healthy and sufficient food; safe and healthy housing; health care; education, opportunity and hope are necessary requirements for human life. Democrats are on-pace to lose the 2022 Midterms. Strategy: Cut taxes for the many, tax the ultra wealthy more. Improve faith in government by making taxation more fair and progressive - those who have more should pay more in taxes. Gun control: Treat guns like cars. Cars can be weapons too and cause loss of lives.

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