Income and Wealth Inequality

Nowadays, the problem of income and wealth inequality is on the agenda of all countries around the world. However, in the United States, this situation is the worst among the developed countries. Senator Bernie Sanders, a candidate for the President of the United States, presented Wealth and Income Inequality as a major economic issue of his campaign. His proposed tax reform is well constructed and it has big chances to solve this issue. Thus, this paper reveals the concept of the income and wealth equity and explores the situation in the USA in the historical context of the past 50 years. The paper also analyzes the tax problem in the USA and studies how Sen. Sanders' proposal can overcome it to provide the better understanding of the problem of income and wealth inequality and peculiarities of Sen. Sanders' fight against it.
Income and wealth equity
The income and wealth equity is usually understood as the equality of results. The point is that everyone should live on one level, receive the same income. However, it is not correct. This understanding of equality contradicts the idea of freedom. It narrows the freedoms of citizens.
The income and wealth equity should be understood as equality of opportunities. The point is that no one has the right to prevent others from using their ability to achieve their goals. The most difficult issue here is what is meant by equal opportunities. If opportunities are the same, this idea is not feasible because people differ in their genetic and cultural characteristics, intellectual abilities; they have a different way of life.
The idea of equality of opportunity cannot be interpreted literally. Its true meaning can be expressed better with the words "˜talents open all paths'. Any social obstacles should not prevent people from reaching the position in society that suits their abilities and what they aspire. The possibilities and chances offered to man should be determined only by his abilities, rather than social origin, nationality, color, religion, sex, etc. Thus, most importantly, the income and wealth inequity between women and men should be destroyed.
Ultimately, the purpose of reaching social justice should not be the absence of rich in society but a lack of poor. If people are equally poor, it is not the solution of problem of justice. Overcoming poverty in society is possible only by giving each person a real economic freedom so that he could receive such income that would ensure his normal standard of living in that society. Economic freedom creates the necessary incentives for productive activities.
The Condition in the United States
Nowadays, the United States is one of the richest countries in the world. However, it is not important because that wealth belongs only to the 1% of individuals. The discrepancy between the incomes of the richest and poorest part of the population in the United States is the largest among all developed countries. The income and wealth inequality rate is the biggest since the 1920s. It is striking that in Bridgeport, Connecticut, which is mere hour's drive from Wall Street, a standard indicator of distribution and income inequality, or the Gini coefficient, is even worse if compared to Zimbabwe.
Because of the social upheavals of the first half of the 20th century, the proportion of income distribution in the USA has changed over time. In 1968, the richest 20% of Americans owned only 42.6% of all income, and the poorest 20% - 15.3% of total revenues. This structure was generally observed by the end of 1970, then inequality began to rise. Already in 1980, the richest quartile of Americans had again nearly a half of all income, while in 2009 - more than a half. At the same time, the wealth of the poorest quartile fell to 13.3% in 1990 and 12.0% in 2009. The income level of the middle layer (20-80% richest Americans) fell from 53.2% in 1968 to 46.3% in 2009. It happened because in the mid-1980s, a huge transfer of wealth from the middle and poorest part to the richest people occurred in the United States. That is the Robin Hood principle in the opposite direction. From the 1960s to the 1980s, the share owned by the bottom 90% of families has grown from 28% to 36% and then has fallen to 22%. Furthermore, the share owned by the top 0.1% of families has grown since the 1970s to 22%. Thus, the 0.1% of richest and 90% of poorest have the same wealth rate.
The income and wealth inequality level in the USA has been increasing all the time since 2008 due to the global financial crisis. The median household income is now the same as in 1979. A recent Pew Research Center report notes that the income of Americans in 2014 was 4% lower than in 2000. It is the first time in a long time that middle-class is no longer the largest part of the population in the USA. In 2009 "“ 2014, 58% of income has gone to the richest 1%, while to the poorest 90% has gone to 42%. The reason is that for the last 40 years, Wall Street and the billionaires have rigged the rules to redistribute wealth and profits to the richest and most powerful people of the USA. At the same time, despite the newest technology and high efficiency, many people in the USA work for the longest hours and for the lowest wages. The average revenue of men is $783 less than it was 42 years ago. The average revenue of women is more than $1,300 less than it was in 2007. In the United States, childhood poverty rate is the highest among the developed countries.
The Tax Problem
The largest financial institutions in the United States took every advantage of being American and just loving the country. In 2008, Congress provided a $700 billion gift to Wall Street. Another $16 trillion in practically zero interest loans came from the Federal Reserve.
However, two years later, after starting to gain record earnings, these huge financial institutions forgot about their love to the native country. While Americans suffered from a bad economic situation because of the recession that Wall Street had caused, the huge financial institutions did everything to evade paying American taxes. They established shell corporations in the Caymans and other offshores.
In 2010, Bank of America established more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0%) to evade payment of the U.S. taxes. Not only did Bank of America pay nothing in federal income taxes, but it also received a discount from the IRS of $1.9 billion that year. The similar situation is with JP Morgan Chase, Goldman Sachs and Citigroup.
Wall Street is not the only one that abuses the offshore taxes. Every year, big corporations and the rich people avoid paying more than $100 billion of taxes by hiding their incomes offshore. For example, Apple creates its products in the USA but produces a majority of its products in China, so it does not need to pay high American wages. Then, it transfers most of its incomes to Ireland, Luxembourg, and other offshores to evade paying American taxes. Without that, Apple's taxes will be $12.5 billion. Offshore tax schemes have reached such a level that more than 18,000 corporations are registered in the one small office building in the Caymans.
Not only does this tax avoiding reduce the money that the State has to pay for education, healthcare, infrastructure, but it also takes away jobs from Americans. Nowadays, companies also transfer the American jobs and plants abroad to reduce their tax bills. Such tax reliefs have led to the loss of more than 5 million jobs and the closing of more than 56,000 plants since 2000 in the United States.
The Sen. Sanders's Proposal "“ Tax Reform
In Sen. Sanders' proposal to reform taxes, the principals of positive economic analysis are involved. Positive economics deals with facts that are already selected and that have been transferred to the level of theory, and it is free from subjective evaluative judgments. It tries to formulate a scientific understanding of economic behavior. The positive analysis answers the question "˜what is', examines the real situation in the economy, and clarifies the objective interconnections between economic phenomena. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved.
Sen. Sanders applies positive economic principals in his tax reform. He operates facts, showing numbers, and demonstrating the causal link between actions and consequences. All his words and statements can be easily checked. He also provides clear and wise solutions that can also be easily followed and calculated.
For example, the biggest American corporations General Electric, Boeing, and Verizon together paid taxes less than zero. They received a tax rebate from the IRS of more than $4.1 billion over this six-year period, even though they had made a combined profit of more than $102 billion, and they still did not pay. Sanders showed facts to people, "˜what is' in the country. He also clarified the reason of it "“ offshores (that also can be followed). Moreover, he also provided the solution for that ("˜if, then'). If they do not pay taxes because of offshores, then it is needed to cancel the current legislation and establish the new one that would force all companies to pay taxes despite the registration in offshores. Thus, the income and wealth inequality will decrease, and the money will be in the country. Here one can see the economic forecast based on the facts "“ the positive analysis.
The Sen. Sanders` proposal can be very effective. Every year, billions of dollars do not come to the Treasury of the United States because of the large corporations` registration in offshores. Thereby, the income and wealth inequality grow because the richest people become wealthier and the poorest "“ poorer. By cancelling the current law that allows all this, Sanders will return money to the country. It is a huge amount. The corporations will not have other choice and will pay taxes. With this money, he can restore the US infrastructure, improve health care, and do many other important things. He will return working places to Americans. Thus, he will improve the US economy and lower the income and wealth inequality that is so huge now.
In conclusion, the income and wealth equality should not be understood as receiving the same income. It should be understood as equality of opportunities. However, the income and wealth equality cannot be achieved completely; the state only can increase the level of life, decreasing poverty. The income and wealth inequality level is the biggest in the United States among the developed countries. The situation began to deteriorate in the 1970s because of the social upheavals. Sen. Sanders' Tax Reform is the way out of this problem. Every year, the country loses billions of dollars because the large corporations are registered in offshores. Sanders wants to change the situation by cancelling the current tax law, returning money to the country and decreasing inequality.

Kate Williamson, writer at https://topwritingservice.com/ and a blogger