Tax the Rich: Income Inequality and Its Solution

As stated by Goldman Sachs CEO, Lloyd Blankfein, in an industry talk earlier this year, “[The United States] does a great job of creating wealth, but not a great [job] of distributing it.” Nothing could seem more appropriate a statement of the times we live in. Since the late 1970s to the current day, there has been a growing disparity between the wealthy and the poor in the United States. As of 2010, the top 1% of households owned 35.4% of all privately held wealth, the second 19%, composed of managerial positions, professionals, and small business owners had 53.5%, and the lowest 80% composed of wage and salary earners held only 11% (Domhoff). These lowest income holders account for the greatest part of the production of goods and services and yet struggle on a regular basis to make enough money for their necessities like rent, food, and transportation. Unequal distribution of wealth leads to social and democratic inequality, two of the things that go the furthest to divide the nation. A redistribution of wealth is in order to fix many of the ills of this country. A solution to the problem lies in a progressive income tax such as the one levied on the wealthiest in the early 40s during a time sometimes referred to as the Great Compression.

Economically, having a workforce with lower spending power simply weakens the workforce. Those with lower incomes tend to have poorer health and less access to higher education. “Much of the debate on health inequalities has centered on the damage done by poverty. However, evidence suggests that health is also related to inequality...there is a gradient in health among those who are not poor, indicating that the higher the socioeconomic position, the lower the morbidity and mortality” (Marmot). This leads to a compromised workforce, one susceptible to high levels of stress and illness. A sick workforce does not make a strong economy.

Income inequality is a powerful divider of society. “We tend to choose our friends from among our near equals and have little to do with those much richer or much poorer. And when we have less to do with other kinds of people, it's harder for us to trust them” (Pickett and Wilkenson 51). This lack of trust leads to instances like the conditions in New Orleans after Hurricane Katrina where the poor who were looking to find food were accused of “looting” by the police ostensibly there to protect them.

Additionally, the poor in the US are subject to a constant barrage of denigration levied by the wealthy corporate media. It refuses to show them in a positive light while reinforcing the idea that one must be rich (or act like it) to be worth time attention. “We have an entire nation of bling-flashing 'Housewives,' a seemingly endless spending parade of Kardashians and Joan Rivers asking the Rolls-Royce-owning creator of Wee Wee Pads 'How'd You Get So Rich?'” (Frank). Where's the corporate social responsibility? Television, one of the diversions open to the working class, offers constant images for comparison only of those who are wealthy, not for those struggling to get by like themselves. This constant comparison leads to negative self-image and a striving for that which is inauthentic, to begin with, further deepening the divide between those who have and those who do not. Such divides are clearly the cause of social unrest between the classes.

Politically, income disparity makes a big difference, too. The United States is purportedly a nation built on the ideals of democracy, but wealth inequality undermines these ideals vastly. In the manner in which the country is currently divided, the wealthy and the big business interests have a much greater say in politics than the average working man or woman. “Rich Americans tend to be more politically active than the rest of the population. They support candidates who share their views and values; they sometimes run for office themselves” (Turchin). Mitt Romney and the Kennedys are an example of wealthy dynasties who came into political power. This support or outright taking of office replicates the interests of the people who had the money and resources to take them—leaving the interests of those without the money or resources in the same powerless position they were, to begin with. If we agree upon the definition of “democracy” as rule by the people, this break down of political power sounds nothing like democracy. This divide is only deepened when we consider the most politically disenfranchised, and often the most economically exploited, the recent immigrants to the United States.

Though some might think it against the American ideal of working hard and accumulating wealth, a redistribution of the wealth of the United States would solve many of these problems. The fact remains that many Americans are living up to their end of the “work hard, get far” ideal and still losing out. So redistribution of the wealth of Americans would actually enhance the ideals that American is founded upon.

The most practical way to redistribute wealth comes in the form of a progressive tax on the highest incomes in the nation. This may sound unappealing to some, but it is important to remember that such a thing happened to great success and the formation of the United States' formidable middle class in the mid part of the 20th Century. The Revenue Act of 1942 was a new tax policy introduced during World War II that brought personal taxes in from the working, most notably the rich.

The result? This tax among other New Deal ideals such as the strengthening of unions and the raise of the income levels of the working class leads to a period of time sometimes referred to as “The Great Compression.” In 1936, a staggering 68 percent of Americans lived in poverty. By 1960, this number had dropped to 23 percent (Pizzigati 271). Of course, many of us alive today hardly remember that time, as income taxes on the rich have dropped and our middle class has all but disappeared, leaving just the gaping hole between wealth and poverty.

If such a thing as the 1942 tax reform were to happen today, the government could increase the amount of money going to social welfare programs, further lessening the divide between the rich and the poor. It could create a healthier, stronger middle class, where more people have access to things such as higher education and better food and healthcare. It would be possible to heighten social cohesion and democratic opportunity for all the classes in America, fulfilling ideals which the nation is said to be founded upon. The burden for these boons would fall most strongly on the shoulders of the rich—those who can afford most to bear it.

Works Cited

Domhoff, G. William. “Wealth, Income, and Power.” Who Rules America. Online. <http://www2.ucsc.edu/whorulesamerica/power/wealth.html>

Frank, Robert. “Rich People on TV Aren't Really Rich.” The Wall Street Journal. Online. 28 June 2010.

Marmot, Michael. “Psychosocial and Material Pathways in the Relation Between Income and Health.” BMJ Journal. 19 May 2001. Online. <http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1120336/>

Pickett, Kate, and Richard Wilkenson. The Spirit Level: Why Greater Equality Makes Societies Stronger. New York: Bloomsbury Press, 2009.

Pizzigati, Sam. The Rich Don't Always Win. New York: Seven Stories Press, 2012.

Turchin, Peter. “Blame Rich, Overeducated Elites as our Society Frays.” Bloomberg.com, 20 November 2013. <http://www.bloomberg.com/news/2013-11-20/blame-rich-overeducated-elites-as-our-society-frays.html>