U.S. Government & Economic Inequality

Published 26 Dec 2016

The Role of U.S. Government in the Creation of Economic Inequality

Economic inequality refers to the disproportionate distribution of economic assets and income. There is no debate about the U.S. being one of the wealthiest nations because of the wealth it amassed through its concept of corporate capitalism (Gutman, 2002). However, the U.S. also has the greatest disparity in the distribution of wealth. Albeit American corporations earned profits in huge amounts and mushroomed in every part of the world, the American worker did not benefit from it. The wages of these workers remained flat or declining since 1978 (Gutman, 2002).

There are three main causes for the disparity in the distribution of wealth, i.e. “capitalism, government and pay” (Gutman, 2002). The dynamics of capitalism is to make the rich, richer. The inherent mechanism of capitalism is to multiply wealth at a faster rate for those with more assets than those with less. To offset and balance the effect of concentration of wealth, two methods are employed to even out the disparity in wealth. The first one is by levying taxes and the second, by government spending.

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When taxes are levied, money is taken from the people. Income is redistributed when taxes are levied and collected. Government thereafter spends taxes to implement its programs. This in effect, returns money to the people in terms of public services and social programs. The persons or classes of entities against who the tax shall be levied, at what extent, and the manner by which the government would spend it, are matters entirely within the scope of the government policy and decision. The policy direction taken towards these decisions will have implications on redistribution of wealth.

For instance, the trend in former Presidents’ tax policies including the current President is to implement tax cuts which actually took funds out of social services and benefited the wealthy people. Moreover, the taxes imposed and levied on the wealthy people were reduced in many ways and consequently, the social security tax and health care for elderly are absorbed by the working class (Gutman, 2002). In 1993, it was former President Clinton who made an exception by taxing the wealthy more.

Fewer funds are allocated for education, housing, social services and health care which the working class and the poor rely on. The worst part is that cuts are also made not only from the services but also in terms of taxes. The result is that the rich becomes richer and the poor, poorer with the tax plan and program of the Government (Gutman, 2002). It is believed that capitalism makes the rich thrive. The American tax policies on the other hand, are deliberately twisted to benefit the rich by taking from the middle class and the poor and give it to the wealthy segment of the society (Gutman, 2002).

The third cause of economic inequality is pay. Corporate executives earn five hundred times than the average worker (Gutman, 2002).There is a great disparity between the highest paid levels as compared to the lowest level. These executives manage their companies for the sole purpose of enriching themselves. They are against any increase in the minimum wage level. There is too much greed in the corporate executives, their investment bankers, accountants and other executive staff that their guiding principle is only to benefit themselves.

The adjustments made to wage because of inflation was not enough. In addition, good paying jobs have disappeared and the low paying service jobs increased. Thus, wages are flat and have not kept in level with the inflation rate. The minimum wage is said to be below federal poverty line. In response to the clamor of increasing minimum wage, several states enacted their version of the Minimum Wage Act.

In addition, the labor unions which used to be effective during the 1960s now only comprise 10%. The effectiveness of labor unions has decreased through the years. Union activities such as strikes are helpful in securing better employment opportunities and benefits for their members. The manner by which the Reagan Administration resolved the strike of air traffic controllers before sent signals to the labor sector that discouraged labor union activities. The air traffic controllers who went on strike were actually dismissed and replaced by new workers (News Batch web site, 2008).

There are also states which have no labor union organizations because of their ‘right to work’ provisions whereby compulsory union memberships” are proscribed by law (News Batch web site, 2008). The management side has successfully discouraged unions because of the slow and long delays during the election certification process before the National Labor Relations Board. There is also the absence of any legislative move to correct and address this problem.

The Gross Domestic Product (GDP) may have increased through the years but still such increase was not accompanied by a corresponding increase in wages. It has been reported that increases were limited to the jobs with a higher level of education. The upper 20% only benefit from wage increases (News Batch web site, 2008).

As a consequence of this, there emerged economic segregation including in the residences. The lower income groups were branded as ‘underclass’ and with the conspicuous consumption of the upper class, changed public attitudes. This resulted in unnecessary spending and consumption, high rate of debts and bankruptcy to be at par with the class status.

Another cause of economic inequality is globalization. This global phenomenon has placed American workers. The first ones who were disadvantaged were those in manufacturing industries because of an unrealistically low level of income in other countries where labor is outsourced. Some sectors claim that this have negative effects on U.S. wages. The Government has failed in providing protection to the manufacturing sector (News Batch web site, 2008).

There is also a noted laxity in the regulation of economic institutions. The economy is dominated by wealthy lobbyists who try to sway and influence the enactment of laws and regulations to favor and benefit them. This type of manipulation was evident during the 1980s banking scandals. Government at that time allowed banking institutions to lend large sums of money at high interest rates to investors (News Batch web site, 2008).

These transactions should have been monitored by the Federal Deposit Regulatory Commission (FDRC) but which was undermanned and was politically pressured and interfered to with its functions. The Government was forced to bailout these wealthy depositors when numerous entities failed. The bailout was taken from the Federal Reserve but which in the effect was absorbed and borne by ordinary taxpayers.

In bridging the widening gap between the rich and the poor, Government must take a proactive role in protecting sectors of the society. It must balance government spending with imposition of levies. Taxes should be more progressive so that the burden can be apportioned more equitably between the rich and poor. Government spending should not favor the rich sector of the society; it should use the funds for social service programs.

Aside from proper tax policies and programs, the Government through its Legislature should enact laws that grant protective mechanism for the labor sector of the society. It should endeavor to rationalize the minimum wage in keeping with the poverty level of the country. It should also grant incentives to middle and smaller business enterprises and not concentrate only in large corporations.


  • Gutman, H. Economic inequality in the U.S. Common Dreams web site. Retrieved on May 1, 2008.
  • News Batch web site. Economic inequality. Retrieved on May 1, 2008
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