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Economic Inequality and Government Policies Term Paper

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Updated: Jul 11th, 2021

Introduction

The gap between the rich and the poor has been increasing yearly since 1970. Indeed, one can state that the distribution of wealth among the American population is uneven. Whereas there are individuals that can be considered extremely wealthy, there are many others who can be described as poor. This is even though both the middle and lower classes have various types of employments. There have been critics who have argued that economic inequality in the country can be solved through provision of a standard basic income (Van Parijs, 2005). This would mean that each person earns the same basic salary. This would be calculated to make sure employees can afford a decent life. Towards this end, one can argue that economic inequality is only considered when people cannot afford basic needs. This paper looks into the current state of economic inequality and how government policies have contributed to the gap. The paper will also consider some programs that have been used in the past to try and lower the disparity. Suggestions on what can be done to ensure a reduced economic inequality gap will also be given.

Current Economic Inequality

Van Parijs (2005) argues that economic inequality hinders a person’s ability to get sufficient subsistence. There are various reasons why the gap has increased in the last several decades or so. For instance, the population has increased. One can argue that the 4% unemployment rate is very low. Thus, many Americans have one form of employment or the other, yet they are still struggling to cater for their basic needs. Home ownership has been an important aspect of the economic inequality debate. This is due to the fact that renting out apartments is considered an expensive venture in many states in the country. Desmond (2017) interviews different people and presents a case where 44% of the salary of one of the interviewees is spent on rent only. This proves that owning a home in the US is a good way of managing expenses.

Indeed, there are various policies that are currently being implemented to lower the economic inequality rates in the country. As stated, Van Parijs (2005) believes that a universal basic income is crucial in achieving this. One of the advantages of such an income is that it provides everyone with the exact amount they need to live comfortably. Towards this end, economies of scale have to be considered for all employees. Issues such as inflation and taxation also have to be considered to ensure that each person, regardless of other external factors, can cater for his or her needs. Apart from the standard income, there have been suggestions that the gap could be lowered using home ownership. Desmond (2017) compares the economic status of several interviewees and concludes that those that own a home have more disposable income and savings compared to those that do not own a home. Through the interviews done by Desmond (2017), one can argue that home owners get benefits that renters do not. For example, the home owners get tax breaks while the renters do not.

Government Policies and Economic Inequality – Mortgage-Interest Deductions

As stated previously, home owners normally get tax breaks and are able to save more compared to renters. Desmond (2017) brings into light the impact of mortgage-interest deductions (MDI), which is a government policy that allows home owners to deduct their interest on any loans they would have taken for purposes of living in a decent home. One can argue that such policies and other tax deductions that are given to home owners have heavily contributed to the increase in economic inequality in the country. Indeed, such polices have made it that more difficult for renters to pay their bills.

In Desmond’s (2017) article, the renter has been applying for government housing for years. The scholar notes that the average waiting time for subsidized housing that is given to low income families is 11 years (Desmond, 2017). This means that the lady will continue to pay rent for approximately 11 years before she is able to get a house and save on costs. In the meantime, home owners will be saving approximately $427 per month on their mortgage due to the stated policy (Desmond, 2017).

One can argue that government policies ideally should be used to lower the identified economic gap as opposed to increasing it. Indeed, the policy was introduced to make it easier for Americans to own houses after the recession. Implementation of the same policy has, however, proven that it does not factor in renters who are yet to qualify for mortgages. One can suggest that the policy can be improved in order to also cater for renters in a way that they do not struggle to pay their monthly bills due to the overreliance of mortgages.

Government Policies and Economic Inequality – Minimum Income Programs

As mentioned previously, there are many policies that are currently being implemented to lower the economic gap across the US. Apart from the MDI, there are several minimum income programs (Van Parijs, 2005) that citizens are advised to use to ensure they can pay their bills. It is important to note that the minimum income programs are founded on the premise that economic inequality is pronounced mainly due to the inability of some citizens to afford their basic needs. Therefore, ensuring everyone can afford his or her basic needs will also address the challenges that have been brought on by economic inequality.

Towards this end, one can argue that this policy contributes to a solution by ensuring everyone who works gets the same amount of basic salary that has been developed after careful analysis of the economy. The policy in no way denies someone the right to earn more money. It is important to point out that such a policy also contributes to the solution, as it provides a sense of equality among all citizens. Critics have noted that it is much more difficult for people of other races to own homes compared to Caucasians. This debate has been pegged on several things including the fact that Caucasians often get higher salaries compared to other races. Having a standard minimum salary for everyone will ensure that despite such disparities, each citizen is still able to cater for his or her basic needs, including housing.

Arguments For and Against Minimum Income Programs

An advantage of the minimum income programs is the fact that it lowers tax burdens. As mentioned through Van Parijs’ (2005) article, taxation would ideally only be done for the extra money people make on top of the minimum wage. It is possible that people who survive purely on their minimum wage will not be taxed or get tax relief. The minimum wage will also encourage people to get jobs, as they can then be sure they will be able to cater for their bills. As mentioned previously, the 4% unemployment rate is very low compared to other countries. Despite this, many Americans still struggle to sustain a decent livelihood. One can argue that lack of minimum wage has led to the exploitation of citizens such that they work for many hours but are not compensated equally. This can be demotivating and lead to high employee turnover as well.

An argument that can be made against minimum income programs is the fact that it can crash the country’s economy if not well executed. Demand and supply both have to be considered before a minimum wage is allowed. However, one can argue that morality requires that those who are able help the poor in the most efficient way possible. Having a minimum wage will do this effectively. The debate on morality is also encouraged by the fact that it is considered immoral to reward the underserving. Indeed, it is objectionable to reward the underserving, as they do not deserve such privileges.

In conclusion, one can argue that the debate on lowering the economic inequality gap can only be solved through a collaboration of government agencies through policies. The two policies that have been analyzed in the paper have both advantages and disadvantages. The strengths of each should be combined to come up with better policies that can serve the general public. Additionally, such policies should work for the benefit of all people and not just a select few.

References

Desmond, M. (2017). New York Times Magazine. Web.

Van Parijs, P. (2005). A basic income for all. Boston Review, 2000(Oct/Nov): 13-48.

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IvyPanda. "Economic Inequality and Government Policies." July 11, 2021. https://ivypanda.com/essays/economic-inequality-and-government-policies/.

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IvyPanda. 2021. "Economic Inequality and Government Policies." July 11, 2021. https://ivypanda.com/essays/economic-inequality-and-government-policies/.

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IvyPanda. (2021) 'Economic Inequality and Government Policies'. 11 July.

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