Solution for Income Inequality and Boosting Economic Growth

Income inequality also known as the gap between the rich and the poor is
the discrepancy in the distribution of income and wealth between
individuals. One of the main causes of the income difference and slow
economic growth is the great recession that has hit the country for the
past thirty months. Because of the recession the country have had to go
through a period of unemployment, and American workers have suffered a
cut in their pay and forced to work part time to be able to meet their
needs. Not only have the great recession affected the household but
also the American government have had to cut down on its spending and to
borrow loans from countries such as China. In the recent past a lot of
concern on the methods to apply in dealing with the problem of income
inequality and enhancing policy that will see the country economy start
to grow has been going on. These paper aims at highlighting income
inequality and coming up with policies that will provide solutions for
income inequality and aid in improving the economy.
In her article “A Budget Focus on Inequality,” Annie Lowrey talks
about the measures that the American government is proposing in order to
deal with the problem of income inequalities and tackling wage
stagnation. According to her the government proposes to set hourly wage
rate to $9, by doing this the government believe that it will uplift the
lives of more than fifteen million workers and give them some purchasing
power which will in return lead to economic growth. The second proposal
that the government proposes is education for all preschool children
from middle and low-income families the reason for this is that the
government believe that these measure will have a positive economic gain
in the future. The third proposal that the government is proposing is
increasing taxation for the wealthy Americans. The fourth proposal that
Obama administration is proposing is supporting manufacturing companies
since they are the main employers for low-income earners and the middle
The author observes that so far The American government have managed to
deal with the problem of inequality by raising taxes for the rich and
making expansion on their programs of aiding the low-income earners in
the country. In addition to this, the author of this article claims
that the bill on Affordable health care had everything to do with
solving the problem of income inequality since it addresses insurance
cost and unnecessary medical bills for the middle-income earners.
Furthermore, the government finances medical care for the low and
middle-income earners and by doing so the government addresses the
problem of consumption, thus leaving the low and middle-income earners
with some cash. Lowrey concludes by saying that the Obama
administration has done a tremendous job in trying to solve the issue of
income inequality and by doing so given people purchasing power, which
in turn is going to boost the economy (Annie).
The taxing of capital income will not only bring the country revenue but
also aid in fixing the problem of income inequality. Capital gains, for
example are increase in asset value for real estate, bonds, and stocks.
Capital gains enjoy preferential treatment, which means that the
wealthiest American is not taxed. Even though, there is opposition
against the idea capital gains taxing with claims that investors would
be discouraged, Capital gains taxing would provide the government with
the revenue needed for government spending.
Janeba, Eckhard in his article “Trade, Income Inequality, and
Government Policies” claims that the government should intervene in
order to promote equity by using benefit systems and taxes reduce
inequality. The article suggest that the government should employ
progressive tax and use the benefit system to give welfare services to
low income earners and tax people depending on their ability to pay for
the taxes. The author goes on to say that, stimulus-improved
infrastructure could be the solution that the United States needs to
solve the problem of income inequality and improve economic growth. By
starting infrastructure works this would mean that more people would be
hired, thus, giving them purchasing power. These workers would increase
demand for commodities thus causing supplies to increase which in turn
would lead to economic growth (Janeba).
Designing institution and labor market policies properly can reduce
inequality. This means that the wages set should be achievable and not
too high to jeopardize the ability of employers to pay the workers thus
leading to layoffs. The strengthening of trade union by institution
arrangement further leads equal distribution on incomes. In addition,
the government in its effort to reduce income inequality and improve the
economy should come up with policies that promote integrations of
immigrants. Furthermore, the government should take the leading role in
the fight against discrimination in order to reduce inequalities and
encourage people to work together and develop the country economy
(Thomas, 63-68).
In conclusion, the issue of income inequalities can have adverse effect
on a country, leading to large number of very poor people and a small
number of very rich people. As a result, it is paramount for the
government to come up with policies that reduces the gap between the
rich and the poor and fosters economic growth.
Works Cited
Annie, Lowrey. “A Budget Focus on Inequality.” Economix. (2013). The
New York Times. Retrieved from HYPERLINK
=incomeinequality On April 24, 2013.
Thomas, V. “Income Disparity and Growth.” Global Journal of Emerging
Market Economies 1.1 (2009) : 63-86.
Janeba, Eckhard. “Trade, Income Inequality, and Government Policies:
Redistribution of Income or Education Subsidies?” National Bureau of
Economic Research Working Paper Series No. 7485 (2000) : n. pag.