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Chris Skipworth

Professor Morean

English 1201-505

29 July 2020

How Can Income Inequality be Solved in the United States?

A man came from a family that lives paycheck to paycheck. Everyone in his family

worked to make ends meet. His mother began working two jobs just to keep up with the bills and

his brother and himself worked full time jobs to financially support themselves. One day while

watching television, the man realized that many people on television in today’s society are very

wealthy members of the upper class. Also realizing that those people do not have to work

multiple jobs just to make a house payment. Many of them inherited their wealth while others

actually worked their way to the top, following the American dream. The man took notice that a

majority of the wealth in the U.S. belongs to the top one percent of people and believes it is not

fair for hardworking lower- and middle-class Americans. This notice leads the man to the issue

of income inequality. Income inequality is on the rise in the United States, resulting with a

majority of the nation’s money in the hands of the upper class and only a scarce amount of

money in the hands of the lower and middle classes. This inequality can be solved by the federal

government in the United States through reductions in the cost of higher education, reductions in

the cost of public services for lower- and middle-class citizens, and reversing tax cuts targeted at

the wealthy.

Income inequality, the unfair distribution of income, is an issue many countries face

across the globe, especially in the United States. In the United States, many attempts have been
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made to resolve this issue with no success. In an article titled “A Guide to Statistics on Historical

Trends in Income Inequality” written by Chad Stone, Danilo Trisi, Arloc Sherman, and Jeniffer

Beltran for the Center on Budget and Policy Priorities discusses a recent economic study

performed in 2016. The study revealed that the income gains of the lower class was 85%, the

middle class was 47%, and the upper class was 226% (Figure 1). This means that the increase in

average income, as a percentage, for an upper-class individual was five times the amount of a

middle-class individual. A majority of the economic growth directly benefits the upper class

significantly while only having a minor impact on the lower and middle classes. This upward

trend in income gains for the upper class is predicted to be higher than the rate of income gain

for the lower and middle classes according to the Congressional Budget Office (Stone et al).

Based on this trend, the rich will keep getting richer and the poorer will keep getting poorer.

Eventually, this would change the United States economy drastically, leading to most, if not all

of the wealth belonging to the upper class alone. This is not acceptable and this issue needs to be

solved.
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Figure 1: Results from a study conducted by the Congressional Budget Office in 2016 visually

displays the income gain for each social class in the United States (Stone et al).

From the conclusion of World War II to the early 1970s, income inequality was

minuscule. Income for most individuals in each social class during this time period grew at a

consistent rate. From the end of the 1940s into the start of the 1970s, the upper, middle, and

lower classes all roughly doubled their income (Stone et al). The benefits of the strengthening

economy after the conclusion of World War II was distributed to all social classes in the United

States. The consistent increase for all three social classes, lead many people during this time

period to neglect the idea of income inequality. This trend of consistent growth and distribution

of income continued strongly until the late 1970s.

Economic growth in the United States began to slow in the late 1970s due to an energy

crisis. There was a substantial shortage of petroleum imports into the United States because of

overseas wars. The slow in economic growth caused income growth for the lower class and

middle class to slow significantly while the income growth for the upper class drastically sped

up. The upper class was doing so well that “The concentration of income at the very top of the

distribution rose to levels last seen nearly a century ago, during the ‘Roaring Twenties’” (Stone

et al). In the past 21 years, the amount of wealth owned by the top one percent increased from

30% in 1989 to 39% in 2016, while the amount of wealth owned by the bottom ninety percent

fell from 33% to 23% (Stone et al). This significant divergence in the distribution of income in

the United States, drew the attention of many, establishing income inequality as a national issue

in many nations worldwide.

A common misconception regarding income inequality is discussed in an article written

by John C. Goodman and published by Forbes titled “The Five Biggest Myths About Income
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Inequality”. This article is an unscholarly source because the website mostly is based upon

opinions with little focus on facts. However, this article is worth utilizing because it covers a

majority of the common misconceptions surrounding the topic of income inequality. The

misconception discussed in this article is that income limits our capability to enjoy life

(Goodman). This implies that income inequality creates an unequal capability for people in

different economic classes to enjoy life. This implication is not true since many people,

especially in the United States, express their happiness in life because of their family and friends

instead of how much income they make. Poorer people have greater satisfaction and enjoyment

in life because they work to obtain items and assets while having their friends and families

support them along the way.

Arguments will be made by some citizens in the United States that there is not any sort of

income inequality in the country. This claim would be made mostly by those in the upper-class

portion of society because they do not want to lose any of their income. The rest of the citizens

that support this claim acknowledge that the wealthy get higher incomes, however, they

underestimate how much higher. The Center on Budget and Policy Priorities conducted a study

in 2016 that found the income increase for the top one percent was about five times the income

increase for middle-class Americans. For example, if an average middle-class American got an

increase in their annual income by ten percent in a given year, an American in the top one

percent would have gotten an increase in their annual income by fifty percent. Multiple

government agencies in the United States, such as the United States Census Bureau, recognize

income inequality as a national economic issue (Stone et al). This recognition further supports its

presence in the United States. This national issue has been researched by many individuals

across the globe to find potential solutions.

A common idea to help solve income inequality is to have the federal government take

action in regards to the higher education syetem. An academic journal written by Ashraf Ahmed

and Kabir M. Adnan titled “Effect of Student Loans on Income Inequality in the United States”

takes a closer look into the higher education system and its impact on income inequality through

research conducted by the American Community Survey under the direction of the United States

Census Bureau. Increasing government funds allocated to the higher education system for

students in the form of grants would make college cheaper. Thus, reducing the debt one has to

pay back from loans in the long run (Ahmed and Adan). Minimizing the cost of higher education

would permit more people in the lower and middle classes to obtain degrees and acquire well-

paying jobs, reducing the dynamic distribution of income.

According to a recent study conducted for a research article titled “Student Loan Debt

Statistics” and written by Andrej Bastrikin, the “…average amount of student loan debt is

$32,731, with an average loan payment amount each month of $383” (Bastrikin). These statistics

uncovered focus on the average individual college student. Based on these averages, the average

loan for a four-year college student would take approximately seven years to pay off after

graduation. During the estimated seven-year period of time, an individual would need to allocate

a good amount of their paycheck to paying back these loans, preventing an individual from

accumulating any kind of monetary wealth. If an individual is not able to make all loan payments

on time, that individual may be charged additional late fees, further increasing the amount of

time needed to pay back all of the outstanding amounts. The reduction in student debt would

shorten the necessary time for an individual student to pay off all their loans, permitting these

individuals to accumulate monetary wealth quicker after graduation. The quick accumulation of
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wealth for graduates would further create a positive impact on the income distribution in the

United States.

Another statistic uncovered from the research article “Student Loan Debt Statistics”

focuses on the student loan debt across the entire United States. This statistic determined that the

outstanding debt in student loans thus far in the fiscal year 2020 was approximately $1.6 trillion

(Bastrikin). This high amount of student loans exemplifies the significant impact a change in the

cost of higher education system would have on the economy of the United States. The large

amount of debt owed by college graduates is increasing to this day and is expected to continue

rising in the upcoming years. A research report titled “State of Working Ohio, 2018: Inequality

amid Job Growth” by Amy Hanauer and Grace Chu discovered that in Ohio alone, the education

level of citizens, who had a bachelor’s degree or higher, rose from 14.7% in 1979 to 26.7% in

2017 (Hanauer and Chu). This increasing trend in the number of college students enforces the

idea that a positive change to the higher education system would have a beneficial long-term

impact for income inequality.

Another idea that would create a beneficial impact in regards to income inequality is

lowering the costs of federal, state, and local public services for lower- and middle-class citizens.

In a viewpoint essay titled “Universal basic income doesn’t work. Let’s boost the public realm

instead” Anna Coote argues that focusing on “…the idea of universal basic services (UBS) could

offer a more promising alternative” (Coote) to solve income inequality when compared to

universal basic income. Universal basic income is a strategy which would distribute consistent

cash payments to all citizens that provide enough money to cover the cost of living. Coote

describes that the universal basic income scheme does not work and basis this claim on a study

that was conducted for Public Services International that found “…no evidence to suggest that
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such a scheme could be sustained for all individuals in any country in the short, medium, or

longer term – or that this approach could achieve lasting improvements in wellbeing and

equality” (Coote). Universal basic income would eliminate the American dream of working hard

to achieve financial stability and would also eliminate economic competition, making this option

unfeasible in the United States. The concept of Universal basic services described by Coote

would make common public services free for all citizens at the cost of the government. This

would directly benefit citizens in the United States because it would eliminate a common cost

that each working individual pays. Typically, working individuals pay for federal, state, and

local public services through deductions in their paycheck. The elimination of a common cost

would allow for citizens in the lower and middle classes to accumulate higher income that would

help to flatten the distribution of money between social classes.

In contrast, the research article about income inequality in Ohio written by Amy Hanauer

and Grace Chu suggests retaining and strengthening only specific public services such as

unemployment and workers’ compensation services to effectively reduce income inequality

(Hanauer and Chu). Hanauer and Chu base their claim on research results from the Economic

Policy Institute and the United States Census Bureau. These services described are targeted at

those who are unemployed due to a disability that limits their ability to work. Currently, those

who are unemployed are likely to develop debt due to their scarce amount of income. By

strengthening these services, the financial burden associated with being temporarily or

permanently unemployed would be eliminated. This would allow for citizens to accumulate

wealth quicker and would result with a positive improvement the distribution of wealth in the

United States.
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Both of these sources include reliable evidence however, their purposes are different.

Coote’s article was created to prove to universal basic income supporters that universal basic

income does not work to fix income inequality and to provide an alternative solution. Hanauer’s

article was published to inform Ohioans of income inequality in the state and to provide potential

solutions. These two sources have the same goal in regards to the reduction of income inequality

utilizing public services. However, each source takes a different approach. Coote focuses on the

reduction of costs associated with all public services, while Hanauer focuses on strengthening

only specific services such as unemployment services.

Both approaches would be sufficient to reduce income inequality, but Coote’s is more

feasible for the United States since similar tax and cost reductions have been passed before such

as Public Law No. 115-97 passed by the 115th Congress of the United States. This law discussed

cost recovery for businesses and lowering taxes for lower- and middle-class Americans (Brady).

Cost recovery, the method to recuperate from an expense, would be significantly reduced if the

costs a business has to pay were lowered. Taxes provide funding for many public services and by

reducing the amount of taxes charged to lower- and middle-class Americans, the cost an

individual has to pay for public services decreases. Further lowering the amount of taxes needed

to be paid for lower- and middle-class Americans would decrease the amount of funding for

public services on all levels of the government. This would be the case unless the upper class is

charged a higher tax rate to compensate for the tax fluctuations nationwide.

A third idea that would benefit the distribution of income in the United States is reversing

tax cuts targeted at the wealthiest portion of society. It has been proven by the Center on Budget

and Policy Priorities that the economic trends from 1979 to 2016 display that federal taxes

reduce income inequality (Stone et al). The evidence that taxes reduce income inequality is
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found in a study performed by the Congressional Budget Office in 2016. The study determined

that taxation on the wealthy reduced the distribution of income owned by the top one percent of

citizens by three percent while increasing the distribution of income owned by the middle class

by three percent (Stone et al). Restoring taxes on the wealthiest would permit the government to

continue funding of public services while providing the government with extra funds which

could be used to reinvest in the United States economy.

Based on an Article in the Journal of Mathematical Sociology titled “What can you and I

do to reduce income inequality?” by Guillermina Jasso, the best way to reinvest in the economy

while effectively reducing income inequality would be to distribute equal shares to everyone.

This would create a system similar to universal income which has been proven by Coote to not

be an effective method to reduce income inequality. Instead of distributing the extra money to

everyone, the government could distribute the surplus funds to various industries such as

education, drug treatment, infrastructure, and energy. The research article “State of working

Ohio, 2018: Inequality amid job growth” describes that the current taxes on the wealthy have not

created a sufficient number of jobs and that there were less jobs available in July of 2018 than

there were in January of 2000 (Hanauer and Chu). The increased funding for industries would

allow companies to grow and create more jobs for lower- and middle-class citizens, resolving job

creation issues (especially in states such as Ohio) while effectively creating a positive impact on

the distribution of income.

The three potential solutions discovered would all create a positive impact on the

distribution of income. Reducing the cost for higher education would allow students to quickly

accumulate wealth after graduation since students would have minimal to no debts to pay in the

long-term. The increasing number of college graduates enforces the significant impact a
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reduction in the cost of higher education would have on the distribution of income in the United

States. Reduction in the cost of public services for lower- and middle-class citizens would

eliminate a common financial burden. The termination of a financial burden would directly

benefit each individual citizen. This benefit allows for the accumulation of wealth, which would

help to flatten the distribution of money between social classes. Reversing tax cuts targeted at the

wealthy would increase the funds allocated by the government to industries. The increased

funding would allow for the creation of more jobs, imposing a positive impact on the distribution

of income in the United States.

Some may argue that the federal government cannot solve the issue of income inequality

because of the deep political division and disagreement between congressmen and

congresswomen. A research report created by Robert E. Litan titled “The Challenges of problem

solving in a divided country” discussed that it is highly unlikely that either major political party

in the United States would be able to have control of the House, Senate, and the presidency at the

same time (Litan). This is a true statement, however, as time progresses, so will the income

inequality between social classes in the United States according to the prediction from the

Congressional Budget Office (Stone et al). The growing trend of income inequality will

eventually begin to transform the economy of the United States. The wealthy will become

economically powerful while the rest of the population will just survive from governmental

services provided. Overtime more government officials will begin to take notice of the economic

transformation and more citizens will begin to urge their congressional representatives. Thus, the

number of politicians willing to vote to take action to reduce income inequality will increase.

The increase in government officials, especially on the federal level, in favor of reducing income
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inequality will bypass the need for any political party to have control of the House, Senate and

the presidency at the same time.

After observation of the history of income inequality, it becomes clear that income

inequality is on the rise in the United States. This rise is causing a majority of the nation’s money

to land in the hands of the upper class, creating a national issue in the United States. Three

federal government solutions to effectively reduce and fix income inequality that work in tandem

with each other include reducing the cost for higher education, reducing costs of universal public

services for lower- and middle-class citizens, and reversing tax cuts targeted at the wealthiest

portion of society. The lower and middle classes make up a majority of the population in the

United States. Together, every citizen in these classes can urge their government representatives

to push for federal action to reduce the unfair distribution of income known as income inequality.

Until action is taken, families like the man’s that live paycheck to paycheck and have every

family member working to earn enough income to make ends meet, will suffer more financially.

This financial suffering will cause hardworking families to lose their homes and other assets to

the growing trend of income inequality.

Works Cited

Ahmed, Ashraf, and M.Adnan Kabir. “Effect of Student Loans on Income Inequality in the

United States.” Journal of Applied Business & Economics, vol. 21, no. 8, Dec. 2019, pp.

11–24. EBSCOhost, doi:10.33423/jabe.v21i8.2575.

Bastrikin, Andrej. “Student Loan Debt Statistics [2020]: Average + Total Debt.” EducationData,

12 Apr. 2020, educationdata.org/student-loan-debt-statistics/. Accessed July 15 2020.

Brady, Kevin. “H.R.1 - 115th Congress (2017-2018): An Act to Provide for Reconciliation

Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year

2018.” Congress.gov, 22 Dec. 2017, www.congress.gov/bill/115th-congress/house-bill/1.

Accessed 15 July 2020.

Coote, Anna. "Universal basic income doesn't work. Let's boost the public realm instead." Gale

Opposing Viewpoints Online Collection, Gale, 2020. Gale In Context: Opposing

Viewpoints, https://link-gale-

com.sinclair.ohionet.org/apps/doc/JWRLEN334275597/OVIC?

u=dayt30401&sid=OVIC&xid=8b66372a. Accessed 28 June 2020. Originally published

as "Universal basic income doesn't work. Let's boost the public realm instead," The

Guardian, 6 May 2019.

Goodman, John C. “The Five Biggest Myths About Income Inequality.” Forbes, Forbes

Magazine, 2 Jan. 2014, www.forbes.com/sites/johngoodman/2014/01/02/the-five-

biggest-myths-about-income-inequality/#777e570c3fdc. Accessed 5 July 2020.

Hanauer, Amy, and Grace Chu. “State of Working Ohio, 2018: Inequality amid Job Growth.”

Policy Matters Ohio, 2 Sept. 2018, www.policymattersohio.org/research-policy/fair-

economy/work-wages/state-of-working-ohio/state-of-working-ohio-2018-inequality-

amid-job-growth#:~:text=Finding%3A%20Income%20inequality%20has%20risen,20th

%20century's%20more%20shared%20prosperity.&text=Finding%3A%20Ohio's

%20wealthiest%201%20percent,in%20the%20state%20in%202015. Accessed 28 June

2020.

Jasso, Guillermina. “What Can You and I Do to Reduce Income Inequality?” Journal of

Mathematical Sociology, vol. 42, no. 4, Oct. 2018, pp. 186–204. EBSCOhost,

doi:10.1080/0022250X.2017.1343826.

Litan, Robert E. “The Challenges of Problem Solving in a Divided Country.” Brookings,

Brookings, 6 Mar. 2018, www.brookings.edu/research/the-challenges-of-problem-

solving-in-a-divided-country/. Accessed 15 July 2020.

Stone, Chad, et al. “A Guide to Statistics on Historical Trends in Income Inequality.” Center on

Budget and Policy Priorities, 11 Feb. 2020, www.cbpp.org/research/poverty-and-

inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality. Accessed 28

June 2020.