Runninghead:INCOMEINEQUALITY

IncomeInequalityandAmericasWealthGap
JoshuaAnderson
CommunityHighSchool

INCOMEINEQUALITY

Economicinequalityhasalwaysbeenaproblemthroughouttheworldandisgrowingin
theUnitedStates.Today,peopleinthetoptenpercentofwealthcontinuetomultiplytheir
incomewhilepeopleinthebottom90percentearnlessandlesseachyear,manyevengoinginto
debt.WithmillionsofAmericansrequiringsomeformofgovernmentassistance,thereisaclear
issuepresent.Economicinequality,orincomeinequalityisdescribedastheunequaldistribution
ofmoneyacrossparticipantsofaneconomy.Itisusuallypresentedasthepercentageofincome
heldbyapercentageofthepopulation.ThisisaprobleminAmericabecauseitcreatesanunfair
advantageinfavorofthosebornintowealthyfamilies.Overtime,moneyandbusinessesare
passeddownfromgenerationtogenerationandpeoplestopbecomingrichbasedontheirown
merit.Inheritancesandtaxevasionaretwoofthebiggestunfairadvantagesusedbythewealthy
tokeepalegupontherestofthepopulation.TheUnitedStateshasalargewealthgapthat
continuestogrowoutofcontrolaneconomyhastobestringentlyregulatedtomaintainorder.
TheUSwealthgapisrisingtothehighestrateeverrecorded.
Thewealthdisparity
betweenupperandmiddleincomeAmericanshashitarecordhigh,accordingtoanewPew
ResearchCenterReport.Onaverage,todaysupperincomefamiliesarealmostseventimes
wealthierthanmiddleincomefamilies,in1984theywereonly3.4timeswealthier.When
comparedtolowerincomefamilywealth,upperincomefamilywealthis70timeslarger
(Salles,2014).Thewealthgapismorethanjustanumber,itisadisplayoftheabsurd
disproportionofAmericasdivisionofwealth.Theresultisthatthetoponepercentofwealthis
worthmorethanthebottomninetypercent(Ibid).The2008financialcrisismayhavesomething
todowiththegap.WhiletheaverageAmericanisstillfeelingthepinchcreatedbythestock

INCOMEINEQUALITY

marketcrash,thetoppercentileshaverecoveredtheirmoneyandareactuallyinbettershapethan
beforethecrisis.
Historically,theUSeconomyhasgrownthefastestwhenthewealthgapwasatits
smallest.TheyearsfromtheendofWorldWarIIintothe1970swereonesofsubstantial
economicgrowthandbroadlysharedprosperity.Incomesgrewrapidlyandatroughlythesame
rateupanddowntheincomeladder,roughlydoublingininflationadjustedtermsbetweenthe
late1940sandearly1970s.Theincomegapbetweenthosehighuptheincomeladderandthose
onthemiddleandlowerrungswhilesubstantialdidnotchangemuchduringthisperiod.
Beginninginthe1970s,economicgrowthslowedandtheincomegapwidened.Incomegrowth
forhouseholdsinthemiddleandlowerpartsofthedistributionslowedsharply,whileincomesat
thetopcontinuedtogrowstrongly(Stone,2015).Thisisevidencethatawidewealthgap
damagesandslowsaneconomysgrowth.TheUnitedStatesgovernmentwasluckyduringthis
timeperiodbecauseitdidnotneedtostepinandimposelawsandrestrictionstoholdasmaller
wealthgap.Today,theUSistoofardividedforanynaturaloccurrencestoreshapeitseconomy,
andsothegovernmentshouldinterveneandattempttolessenthegap.Closingthegapisthe
solutionproposedbyCommunism,whichisjustasfundamentallywrongasallowingittostayas
wideasitcurrentlyis.NarrowingthegapisthesolutionproposedandusedbyCanadianstyle
socialismwhichhasbeenproventobethebestoption.
Whilesomearguethatitisunfairtotaxtherichatahigherrate,itisnecessarybecauseif
theUSallowsthisinequalitytogrow,itwillquicklybecomeacountryruledbyahandfulofrich
familieswhopasstheirwealthandassetsdowntotheiroffspring.Whenassetsaredistributedto

INCOMEINEQUALITY

beneficiariesaftersomebodydies,ataxisimposed.Thistaxiscalledinheritancetax.Anestate
taxdiffersfromaninheritancetaxinthattheassetsaretaxedimmediatelyafterapersondies,
beforeanyassetsaredistributedtoanybeneficiaries.Theissuewithinheritanceandestatetaxes
arethattheyareonlyimposedinahandfulofstates,andareeasilyavoidable.Thisisthebiggest
reasontomodifyestateandinheritancetaxlaws,andincreasethetaxforinheritancesvalued
higherthan$1million.
Aninheritancetaxisastatetaxthatyoupaywhenyoureceivemoneyor
propertyfromtheestateofadeceasedperson.Unlikethefederalestatetax,thebeneficiaryofthe
propertyisresponsibleforpayingthetax,nottheestate.However,asof2015,onlyeightstates
imposeaninheritancetax.Andevenifyouliveinoneofthosestates,manybeneficiariesare
exemptfrompayingit(WhatareInheritanceTaxes,2015).Mostrecipientsareabletoqualify
forinheritanceandestatetaxexemptions,anditisalltoocommonforbeneficiariestousethese
loopholesinordertokeeptheirmoneyawayfromthegovernment.Mostinheritancesarenot
taxeduntiltheyareover$2million,thentheonlytaxedportionisthetotalabout$2million,if
somebodyinherits$3million,only$1millionofthatistaxed,atanyratebetween5and20
percent.Thisisabrokenandabusedsystemandtoanyonewhounderstandstheworkings,it
clearlyneedstobefixed.
Peoplearealwayslookingforeasywaystopinchapenny,andsaveabuck.Some
Americansfeelasthoughtheactofpayingtaxesisawaste.Americastaxsystemissofullof
holesthattheactofpayingtaxesisverycommonlyavoided.Whensomeoneabusesthisbroken
systemtheyarecheatingtheirfellowcitizens,bynotcontributingtoacommunity,state,and
country.Fromfraud,toabusingloopholes,tooutrighttaxevasion,millionsofAmericancitizens

INCOMEINEQUALITY

andcompaniesunfairlywithholdtheirmoneyfrombeinglawfullytaxed.Convincingtaxpayers
tobefairandcontributetheirportionhasproventobeimpossible,butwhatisnotimpossibleis
amendingAmericasbrokentaxcode.Appleiscurrentlyoneofthemostprofitablecompaniesin
theU.S.,andtheyhaverecentlyseencontroversyforusingloopholestoavoidpayingthe
company'staxesinfull.Inthelastfouryears,Applehaspaidonlyatinyfractionoftaxesonthe
$74billionofincomeithasearned.AsofMarch30,$102.3billionofApple's$145billionin
cashandcashreservedwasheldoverseas,accordingtoacompanyfilingwiththeSecuritiesand
ExchangeCommission.U.S.taxesontheoverseasfundsaredeferredunlessthemoney'sbrought
totheU.S.Atthattime,the35%U.S.corporatetaxratewouldbeapplied(McCoy,2013),this
isallegedlythereasonApplewasabletogetawaywithonlypayingtaxesonafractionoftheir
incomeinrecentyears.AppleisjustoneexampleofamajorUScompanyexploitingtheissues
inAmericasbrokentaxcode.
Americastaxcodeissocomplexandriddledwithloopholesthattaxlawyersand
accountantshavetroubleunderstandingit.Thecomplexitiesandexceptionsmakeplentyofroom
forloopholes,whichistherootoftheproblem.Ifthetaxcodewasbrokendownorrewritten,the
USgovernmentwouldprofitgreatly.Inadditiontothepotentiallostrevenuefromlegally
exploitedloopholes,anIRSconsultantestimatedthattheUnitedStatesTreasuryloses$70
billionannuallyinrevenueduetooffshoretaxevasion(
Dougherty,2014).Itisunfortunatelya
greatundertakingtotrytochangethetaxcodebecausewhenmoneyandbureaucracyaremixed,
reachingasolutionbecomesproblematic.AnotherdistressingstatisticfromthecompanyDemos
showsthattheUSGovernmenthaslostabout$3.09trillioninrevenueduetoallformsoftax

INCOMEINEQUALITY

evasionbetweentheyearsof20012010.Thisbreaksdowntoanaveragelossinrevenueof$309
billionperyear,justfromtaxevasion(FederalRevenue,2011).
RaisingAmericasminimumwagehasbecomeapopulardiscussioninrecentyears.Most
statesinAmericatodayhaveaminimumwagesetat$7.25perhour.Somecitieshave
ordinancessettingtheirminimumwagelevelatahigherrate,likeSeattlesminimumof$15an
hour.(Orr,2015)Seattlehasbeensteadilyandslowlyincreasingtheirminimumwage,inorder
torefrainfromcreatingashockinitseconomy.Therearedifferentlevelsofeconomic
inequality.Thereisthegapbetweentheuppertenpercentandtherestofthecitizens,andthereis
thegapbetweenthelowertenpercentandtheshrinkingmiddleclass.IncreasingAmericas
minimumwagewillnotchangethegapbetweenthemiddleandupperclass,butitwillimpact
thegapbetweenthelowerandmiddleclass.Thelowerclassisprimarilymadeupofpeople
workingminimumwagejobs,ornotworkingatall.Increasingtheminimumwagewillgive
incentivetounemployedlowskilledlaborerstowork.TheEconomistestimatesthatiftheUSis
andfollowedthepatternofotheradvancedeconomies,Americawouldbepayingoutabout
twelvedollarsperhour(Desilver,2015).ThevalueoftheUnitedStatesdollarhasbeen
diminishing,whilewageshavenotincreasedinquitesometimeformanypeople.Infact,Since
itwaslastraisedin2009,tothecurrent$7.25perhour,thefederalminimumhaslostabout8.1%
ofitspurchasingpowertoinflation(Desilver,2015).Minimumwageneedstokeepupwith
inflationtoensurethatthelowerclassdoesntsliptoofarawayfromthemiddleclass.
TheUnitedStatesneedstomorestrictlyregulateitseconomyinordertohandleits
growingwealthgap.Americashouldsimplifyitslawspertainingtotaxcollectioninorderto

INCOMEINEQUALITY

eliminateloopholesthatallowpeopleandcorporationstocheatthesystem,causingahugeloss
inrevenueeveryyear.NarrowwealthgapshavehistoricallyspeduptheU.S.seconomy.The
smallerthegap,thestrongerandhealthierAmericaisasaneconomy.Peoplearemoremotivated
whentheyrecognizeafairopportunity.Withouteconomicinequalitybeinganobstacleto
success,peoplearemoreinclinedtotrytoadvance.

INCOMEINEQUALITY

References
Desilver,D.(2015,July23).5factsabouttheminimumwage.RetrievedJanuary21,2016,from
http://www.pewresearch.org/facttank/2015/07/23/5factsabouttheminimumwage/
Dougherty,A.Unfairandunintended:Thetaxexemptorganizationblocker
loophole,2013BYULawReview

1341(2014)
Federalrevenuelosttotaxevasion.(2011).RetrievedJanuary11,2016,from
http://www.demos.org/databyte/federalrevenuelosttaxevasion
McCoy,K.(2013,May21).Apple'staxingenuityatoughsellforSenatecritics.Retrieved

December4,2015,from
http://www.usatoday.com/story/money/business/2013/05/21/appletaxstakes/2347745/
Orr,D.(2015,April1).Seattleminimumwageordinance.RetrievedJanuary21,2016,from
http://www.seattle.gov/laborstandards/minimumwage
Salles,J.(2014,December18).Thewealthgapbetweenrichandpooristhewidestever

recorded.RetrievedJanuary8,2016,from
http://thinkprogress.org/economy/2014/12/18/3605137/uswealthgapatitswidestinde
cades/

Stone,C.,Trisi,D.,Sherman,A.,&Debot,B.(2015,October26).Aguidetostatisticson
historicaltrendsinincomeinequality.RetrievedDecember14,2015
Whatareinheritancetaxes?(2015).RetrievedJanuary5,2016,from

https://turbotax.intuit.com/taxtools/taxtips/Taxes101/WhatareInheritanceTaxes/INF
14800.html

INCOMEINEQUALITY