Assessment of Income Inequality

Assessment of Income Inequality

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Abstract

Income inequality connotes the disparity of income across the population. Among the segments that have been consistently used are male vs. female, ethnicity, geographical location, as well as occupation and historical income. Gini Index has consistently unpacked the simmering income inequality in the US as well as the whole World. The Federal Reserve provided the report on income distribution among the different groups from top 1% entitled to 33%, 90%-99% entitled to 37%, 50%-90% entitled to 28%, and bottom 50, which is entitled to 1%.  Among the reasons that explain this disparity are stagnating salary for the Americans who only depend on wages, the tax cuts imposed on the wealthy class, the consistent loss of jobs in the manufacturing sector, and the soaring witnessed in the stock market. Institute for Women Studies has published the nexus between gender and income inequality and race and income inequality. Women always receive 80%-90% of the income of that of men. African Americans and Hispanics in the US always receive lower income compared to the whites. There is another group, 0.01%, and the 0.1%, referred to as ultra-rich and therefore are entitled to high income compared to the lower groups.

Income Inequality

This Subject encompasses the uneven distribution of income across the population. Income inequality increases with the increasingly skewed distribution. This aspect goes hand in hand with wealth inequality. A myriad of segmentation is useful in the analysis of income inequality. These segments aid the investigation, for instance, the demographic segmentation. These segmentations may be categorized as Male vs. Female, Ethnicity and Geographic Location, occupation, and historical income. The Reports in the US, for instance, provide concise analysis reports for a better understanding of income inequality. This element has been evident as the Federal Reserve releases the quarterly reports of Distributional Financial Accounts. This report outlines the nature of income distribution in households in the US. This term paper, therefore, unpacks the three different views of income inequality.

Literature Review

According to …, the US Federal Reserve had provided the overall income distribution in the US.

The 4Q19 Distribution of Income According to Federal Reserve

            The Economic Policy Institute has also been at the forefront in unpacking the trends on top earners’ income increase from the 2008 recession to a few months ago. “It has been evident that the individuals that constitute the top 1% have constahavey experienced high income in contrast with the sluggish income increment of the individuals forming the 99% all over 43 states in the US including Washington DC” (Hertz, 2020). Many factors explain this trend in America for instance cases where wage earners in America experience stagnation of salaries; the loss of jobs in the manufacturing sectors as well as tax cuts imposed on rich and wealthy Americans and finally the stock market soaring that resulting in inflation not only on the worth of corporate Executives but also managers of hedge funds.

Against the backdrop of recession in America, companies have a consistent investment in hiring and keeping workers in healthcare fields and engineering. This aspect has translated into automation of certain functions and function takeovers, which has pushed down worker wages in less competitive jobs. EPI also plays a significant role in wage tracking regularly by segments.

According to Peach, statistical measures show a considerable growth of income inequality in the US for the last 30 years. This element has taken the form of income inequality, wage inequality, and CEO-worker pay gaps. Therefore, this element implies revenue streams, mainly from wages, interests, and salaries on dividends resulting from stock shares, savings account rent, and profit realized on the stock sale. “The figures of income varies from those of wealth statistics as they do not entail as they do not take into account the value of possessions like stock or even homes.” As per Emmanuel Saez, an economist at UC Berkeley, the top 10% in America realize receive nine times higher wages than the remaining 90%. The Americans at the top 1% now receive much higher (Peach 2020). The income that the top 1% averages are 39 times higher compared to that of the bottom 90%.  However, there is a pale in the same gap when the tot 0.1% income is compared to the rest of the population. The Americans that for the 0.1% receive income that is 196 times higher than 90% at the bottom. This case is far different from the point above which does not put cognizance on the top 0.1% population.\

Today, America’s income inequality is very vast; this is contrary to the success that was realized by policymakers and social movements in the 1900s when they responded to the simmering income inequality in the Gilded Age. This element was achieved through taxation, which was to level down the top and unionization for the leveling up of the bottom. The top 1% is consistently doubling the annual shares of the national income. The Census Bureau recorded that the US official poverty is always inching up as well as down. It is crystal clear that the official poverty rate is only presenting an understatement of the exact number of people in America who find it challenging to make ends meet. The American population’s estimation, which is either poor, or has a low income, sums up to 140 million people.

According to Rojas-Vallejos, the income of the 0.01% and 0.1 populations in the US has risen consistently in the past more than that of the 1% population. “Despite the drop of the income of these two ultra-reach entities due to occasional recessions in America, their recovery is much faster than the1% population”. The nature of the concentration of income is in the equal state of what was experienced in the “roaring 20s”. The budget office of the congress takes the income before tax as market income added to government transfers; hence this is the amount of income that one realizes and social assistance from the government (Rojas-Vallejos, 2020). This top 1% of the population always ends up with income, which is more disproportionate than the country’s top fifth of earners. According to the CBO data, this top 1% group realizes income, which is 86% higher compared to the 20% group at the bottom. This means that the top one %’s before-tax income is continuously increasing day by day compared to 20%.

According to the congress’s budget office in America, the after-tax income is taken as before-tax income less of the federal taxes. Even after taxes, the top 1% group still realizes an increase in income more than the remaining groups. Since the 2017 tax cuts by the republicans, the income gap has been consistently increasing, and this disproportionate distribution works mostly for the interest of the wealthy. A few weeks ago, the most affluent group that constitute the 1% still benefited in the 2020 tax cuts by receiving 27% benefits as presented by the Institute of Taxation and Economic Policy.

Discussion

The share of income that is accrued from the profits of investment increases with an increase in the income group’s elevation status in the US. The population that does not fall within the ultra-rich category often depends on salaries or wages as their primary income. Therefore consistent disparity has established income inequality due to preferential tax treatment, which is embedded in long-term capital gains. At the moment, the highest marginal tax rates that the top wealthiest Americans realize amounts to 37%, yet only 20% is the highest rate of capital gains in the long term.

According to the Institute for Women’s Studies, different population segments are hit differently by income inequality, some severely while some lightly. Women and African Americans and the Hispanics are always the apparent victims of wage gaps; Women have ever received a payment of 81.8% of men’s salaries. According to data by the Pew Research Center on gender and income disparity, this disparity has been relatively narrow between the two genders at the age of 16 and above. Women at this age are entitled to income, which is 85% of men’s income. This gape has continuously narrowed over since 2018, where women have been able to receive 95% of men’s income.

A graph showing income inequality in the US

In conclusion, income inequality represents the disparity that exists in the distribution of income across the population. Income inequality is different from wealth inequality, as wealth considers even the assets like houses and land. The significant segments used in America to analyze income inequality include gender that is male vs. female, ethnic distributions, geographical location occupations, and historical income. Income inequality in the US, for instance, varies across the different groups in the society, for example, the rich 0.01%, 0.1%, 1%, 20% and even 90%, where the ultra-rich to 0.01% group are entitled to high-income privileges compared to the bottom 90% group which only depends on salaries and wages.

Reference

Hertz, T., & Silva, A. (2020). Rurality and Income Inequality in the United States, 1975–

2015. Rural Sociology, 85(2), 436-467.

Peach, J. T., & Adkisson, R. V. (2020). Regional Income Inequality in the United States:

1969–2017. Journal of Economic Issues, 54(2), 341-348.

Rojas-Vallejos, J., & Turnovsky, S. J. (2020). Differential Tariffs and Income Inequality in

the United States: Some Evidence from the States. Open Economies Review, 1-35.