Walt Whitman High School
1st Place, Maryland
Tackling Income Inequality Requires Political Will and Reasonable Compromise
Since the late 1970s, income inequality has significantly widened in the United States, with potentially dire consequences for upward economic mobility and societal cohesion. It is imperative that our own policy makers immediately begin to address this issue and that our citizens hold them accountable for the actions they take, or fail to take, to tackle this problem.
Income inequality began to climb sharply in the early 1980s. Today, the top 1 percent of the country’s population takes in over 20 percent of the country’s income compared to about 8 percent in the late 1970s1. Deindustrialization and international trade have played a significant role in the rise of income inequality. Many U.S. cities with a traditionally strong manufacturing base underwent large-scale job losses due to “offshoring”, the practice of moving industrial production or services to foreign locations where labor and other costs are lower.
Economic globalization, including regional or bilateral trade agreements, has provided strong incentives for companies to send their operations abroad, as companies attempt to remain competitive in increasingly diverse markets. A recent Congressional Research Service report cited that more than 3.4 million U.S. jobs are projected to be outsourced between 2008 and 20152. China, Mexico and India are among the main beneficiaries of outsourcing. The result has been a dramatic increase in unemployment and loss of income with workers often moving from high-paid industry jobs to relatively low-paid services jobs, if they could find jobs. This has greatly contributed to today’s widening income gap.
The growing reliance of U.S. businesses on technology also contributes to growing income inequality. The IT revolution of the past three decades created assembly line and administrative efficiencies that resulted in a reduction in labor. This often meant that highly skilled workers enjoyed new job opportunities while low-skilled workers found opportunities extremely limited. The U.S. government has responded to this situation by creating training programs for those laid-off or otherwise unemployed; however, re-training an older workforce has a low rate of success. Only a small fraction of these workers have benefitted. In the long run, a higher priority should be to equip younger people with the necessary skills to compete in the high-tech economy.
Today’s American public education system perpetuates income inequality. Children who live in wealthier school districts likely attend well-funded schools, with better teachers and equipment. This provides them with a greater level of opportunity in higher education and employment prospects. Even as federal government spending has attempted to address this disparity between high and low-income school districts, the progress was seldom seen due to the wide array of other structural and personnel deficiencies in these low-income districts. In 2008, the high school dropout rate in Meridian, Mississippi, the poorest city in the poorest state, was 39 percent3. In well-to-do Boston, Massachusetts, it stood at 6.8 percent4. Simply put, richer neighborhoods have better funded schools than poorer neighborhoods do, and therefore produce better results. If this gap widens further, the results lead to greater income inequality for those who do not have a chance to attend better schools.
In higher education, the major factor contributing to income inequality is the excessive cost. According to a report from the National Center for Public Policy and Higher Education, college tuition and fees grew by 439 percent from 1982 to 2007, while median family income rose only 147 percent, thus forcing more students to apply for student loans5. Of the 20 million students attending college every year, nearly 12 million, or 60 percent, filed for loans to cover tuition6. Among poorer families — those with incomes in the lowest 20 percentile — the net cost of one year at a public university was 55 percent of median income, up from 39 percent in 1999-2000. Even at community colleges, the total cost of tuition on average was 49 percent of the poorest families’ median income in 2011, up from 40 percent in 1999-20007.
Currently, colleges have few incentives to reduce tuition as long as the government and banking institutions allow students to obtain seemingly unlimited loans. One option, limiting student loans to a certain amount -- both per year and cumulative -- would eventually force most universities to hold down, if not reduce, tuition costs. If the vast majority of students are unable to afford high tuition costs, fewer people will apply to schools with high tuition, and many universities will have no choice but to reduce them.
Many graduates with law, medical and MBA degrees cannot find jobs, let alone pay off their loans. Those who obtain a four-year degree at a liberal arts school are having an especially difficult time finding a job. An analysis conducted by the Associated Press finds that one out of two students coming out of college in 2011 was unable to find a job8.
One possible solution to these issues is to offer jobless university graduates the chance to spend a few years working in low-income schools in exchange for forgiving a portion of their debt. This would enable both under-performing schools to benefit from educated young people, helping to improve the quality of education in their schools, as well as allowing the students to reduce debt at a time when the economy does not provide many employment opportunities.
More emphasis also needs to be placed on other education options. These days, technical and vocational schools are good alternatives to the traditional college education. Too many people spend tens of thousands of dollars on university or graduate degrees for nonexistent jobs while the U.S. needs more students with technical skills such as math, science and engineering available at technical schools and community colleges. For instance, IT engineers in the U.S. can gain entry-level jobs with salaries of over $100,000. Over their career, such engineers can earn $1 million more than the average U.S. college graduate9. This will also help prevent the U.S. from having to import workers to do this type of work to remain competitive in the global economy.
Recent tax policies have further exacerbated income inequality in America. The Bush Administration tax cuts in 2001 and 2003 disproportionately benefitted higher-income families. The top 1 percent and bottom 60 percent of Americans received a total of $477 billion and $268 billion respectively in tax breaks over a 10-year period10. The top capital gains rate currently stands at 15 percent, which is significantly lower than the 35 percent top income tax rate. Given this advantageous tax policy, the carried interest loophole allows even billionaire hedge fund managers to declare income they make from business under the lower capital gains tax. Changing this inequitable tax loophole would indeed raise these individuals’ overall tax burden, as this income would now be treated as the “income” it truly is. If this policy alone were adopted, about $17.7 billion in additional revenue could be generated over 10 years11.
The Social Security tax disproportionately burdens lower income families and individuals. Currently, the maximum taxable earning for social security is $110,10012. While raising that cap on the payroll tax for wealthy individuals would not eliminate entirely the regressive nature of this tax, it would generate significant revenue to the government to allow it to support more programs designed to assist low-income people in improving their economic situation. Given that the U.S. spent $48.9 billion in deficits to pay for social security in 2010, it would also help improve the long-term solvency of the program which is a vital support system for the retirees13.
In addition to asking the rich to contribute a bit more to the society that allowed them to flourish, the income of the poor must also be raised to reduce the gap. Although the current minimum wage is $7.25 per hour, for 10 years the minimum wage remained at $5.15. It was raised in three separate increments, each of the years 2007-2009, to its current level14. By contrast, it is important to note that, starting in 1989, Congress increased its own pay 13 separate times15. Such disparate treatment by policymakers of upper-income compared to lower-income people demonstrates why it will take a fundamental change in approach to economic policies if we truly wish to change income inequality.
Increasing income disparity is eroding the American Dream that has produced the historic growth of a strong middle-class in this country. A spike in inequality will foster division and injustice in our society, whereas the narrowing of the inequality gap will produce more equitable economic growth and civic harmony. As the cradle of individualism and free entrepreneurship, the U.S. should tackle income disparity consistent with its basic American principles. When economic policies and education opportunities are clearly designed to address income disparity, as outlined above, this will ensure that all Americans will have the opportunity to strive to realize, to their own highest potential, the life, liberty and the pursuit of happiness enshrined in the Declaration of Independence.
- The Not So Common Factors Behind Inequality, Economists View, http://economistsview.typepad.com/economistsview/2012/03/the-not-so-common-factors-behind-inequality.html (Mar. 10, 2012).
- Linda Levine, Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers, Congressional Research Service, http://assets.opencrs.com/rpts/RL32292_20110121.pdf (Jan. 21, 2011).
- High School Graduation Rates, Mississippi Department of Education, http://www.ssrc.msstate.edu/mskidscount/downloads/Databook2010/sections/2010High%20School%20Graduation%20Rates.pdf (2010).
- Boston Public School Graduation Rate At Record High, Wicked Local Roslindale, http://www.wickedlocal.com/roslindale/news/x1717083872/Boston-Public-Schools-graduation-rate-at-record-high#axzz2Ap3X40iF (Feb. 15, 2012).
- Ron Wyden Puts a Number on the Soaring Cost of College – 439 percent, Politifact Oregon, http://www.politifact.com/oregon/statements/2012/mar/07/ron-wyden/ron-wyden-puts-number-soaring-cost-college-439-per/ (Feb. 9, 2012).
- James Marshall Crotty, Dude, Where’s My Student Loan Bailout, Forbes, http://www.forbes.com/sites/jamesmarshallcrotty/2012/09/12/education-shocker-81-of-those-with-student-loan-debt-want-it-forgiven/ (Sep. 12, 2012).
- Tamar Lewin, College May Become Unaffordable For Most in U.S., New York Times, http://www.nytimes.com/2008/12/03/education/03college.html (Dec. 3, 2008).
- Eyder Peralta, AP Analysis: Half of Recent College Grads are Jobless or Underemployed, NPR News, http://www.npr.org/blogs/thetwo-way/2012/04/23/151217630/ap-analysis-half-of-recent-college-grads-are-jobless-or-underemployed (Apr. 23, 2012).
- Steve Hargreaves, Oil Rig Workers Make Nearly $100,000 A Year, CNN Money, http://money.cnn.com/2012/05/10/news/economy/oil_workers/index.htm (May 10, 2012).
- Larry M. Bartels, Unequal Democracy (Princeton: Princeton University Press, 2008), 166.
- Dylan Matthews, What Is the Carried Interest Loophole, and Why Doesn’t Romney Want To Cause It, Washington Post, http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/15/what-is-the-carried-interest-loophole-and-why-doesnt-romney-want-to-close-it/ (Aug. 15, 2012).
- Benefits Planner: Maximum Taxable Earnings (1937-2012), Social Security, http://www.ssa.gov/planners/maxtax.htm (2012).
- Social Security Deficits are Permanent and Growing, Federal Budget in Pictures, http://www.heritage.org/federalbudget/social-security-deficits (2011).
- Wage and Hour Division, United States Department of Labor, http://www.dol.gov/whd/minwage/america.htm#.UJBb78X4KSo (Jan. 1, 2012).
- Ida A. Brudnick, Salaries of Members of Congress, Congressional Research Service, http://www.senate.gov/CRSReports/crs-publish.cfm?pid='*2%404P%5C%5B%3A%22%40%20%20%0A (Oct. 3, 2012).