Income Inequality Exploring and Explaining

Income Inequality

Exploring and Explaining the Income Inequality in the United States: The Self-Perpetuation of the "Meritocracy"

The recent (and ongoing, though now far less publicized) Occupy protests were not meant simply to highlight the outright corruption and greed that was perceived to exist in the world and the nation's financial industry, but also to highlight and to protest the growing wealth disparity in the developed world and most especially in the United States. The rallying cry of "We are the 99%" was explicitly meant to call attention to the wealth and income gap in the nation, which has grown at exponential rates over the past several decades and has reached levels that are unprecedented at any previous point in history (Gilson & Perot, 2011; Domhoff, 2012; Berman, 2011). It is one thing to express anger and frustration at the inequality in the income and wealth distribution, however, and it is quite another to protest based on a deeper understanding of what is causing this growing income disparity. An analysis of the economic trends of the past decades and certain other features of society in the United States reveals that the income gap is built on a self-perpetuating system that is further exacerbated by inequalities in access to education and healthcare.

Income Gap Self-Perpetuation

The primary reason that the income gap in the United States has continued to grow at rampant rates is that income, especially the take-home portion of income, is directly related to taxation, and on the other end income (that is, money) can be used to influence policy making through lobbying, campaign contributions, and other means (Domhoff, 2012). What this means is that the wealthy -- those with a higher income level -- can use their additional income and wealth to lobby for lower tax rates and to influence other policies that enable them to make more money and part with less of it, and indeed not only has the income gap increased in the past decades, but the proportion of take-home income (that is, income after taxes) has also undergone radical changes at various levels on the socioeconomic ladder (Gilson & Perot, 2011; Domhoff, 2012). Higher earners do not simply earn more in relative and absolute terms than they did thirty years ago, but they also retain a larger proportion of their earnings, while earners in the lower sixty percent of Americans continue to receive almost the same initial income and actually take home a smaller proportion than they used to (Gilson & Perot, 2011). To make sure this is clear: the highest income earners now earn many times what they did thirty years ago and also pay far less in taxes proportionally than they used to, while those earning lower incomes have not seen an increase in their wages but have seen an increase in their tax burden. To say that economic growth and benefit over this period has been unequal would be across understatement.

This situation certainly suggests that the power and influence of increased wealth in the hands of the highest income earners is being used to influence policy and protect those that already have wealth while making it far more difficult for others to climb the socioeconomic ladder. The fact that the tax burden has shifted is not itself a major cause of the growing income inequality, but is rather provided as the clearest indication that the wealthy are indeed influencing policy using their wealth -- there is no other logical explanation for shifting the tax burden towards those unable to actually support it. Policy changes have also allowed for the extra income generated by the relative prosperity of the recent decades to go almost entirely to the highest earners while earners at other income levels haven't seen any benefit, something that can in part be chalked up to the decreasing power of unions and increasing legislation and policy in favor of corporations rather than individuals and employers rather than employees (Domhoff, 2012; Berman, 2011; NY Times, 2010). The income and wealth gap continues to grow at a faster and faster rate because there is ever more power to affect policy provided to those that have such substantial incomes.

Education and Healthcare

There are other less direct ways in which the income gap is self-perpetuating, as well, establishing a system that purports to be meritocratic -- based on merit, where everyone has an equal chance to succeed based on their own skills and efforts -- but that in reality is stacked in favor of those already endowed with financial success (the Economist, 2006). Access to education is heavily mediated by the ability to pay for this education, and this is true at all levels, from elementary school through to undergraduate and graduate schools; wealthy parents can afford to hire tutors for their children, to pay high fees for prestigious private schools that confer advantages in higher education and in the job market (the Economist, 2006; NY Times, 2010). While the system is designed to make it appear that everyone is succeeding on their merits, when the wealthy have vastly increased opportunities for developing their skills and knowledge then native ability and work ethic begin to matter far less. With only 3% of people in top colleges from the poorest quarter of the nation, it is clear that the meritocracy is broken (the Economist, 2006).