Several developed nations are experiencing substantially higher income and wealth inequality, and the problem is growing, causing a national debate to intensify. Economic shocks caused by the COVID-19 pandemic, the 2008 financial crisis, and the slow and uneven recovery have worsened these trends. The ability to move upwards has long been a strength of American culture, but some signs suggest that American economic mobility tends to start disappearing. By creating large income and wealth gaps across racial groups, economic inequality affects the ability to achieve the “American Dream,” and ways to solve the problem include increased educational opportunities, higher minimum wage, and progressive income taxes.
Since the 1970s, income inequality has been on the rise in the United States as the high earners expand rapidly. There has been a disproportionate increase in income gains among high earners. The problem of an increasing income gap in American society is well known to all of us. The Census Bureau’s data are often used to illustrate the divide between the rich and the poor. According to them, “between 1967 and 2010, the share of national income going to the bottom 20% of households declined from 4% of the total to 3%, while for the top 20% of households during the same period, it rose from 44% to 50%” (Siripuraru). By 2018, the ratio of corporate CEOs to workers was 278:1, according to a progressive think tank. CEOs earned about twenty times as much as workers in 1965. Many fear that this distribution may not just be inherently unfair but may indicate that individuals are having an increasingly difficult time moving up due to a concentration of income and wealth at the top.
Having a clear notion of what economic mobility means is essential to understanding the supposed problem with the American Dream. Most Americans understand “economic mobility” as the development of a person’s standard of living in line with his skills and effort over time and with the generational rise in general living standards (Butler). In America, mobility has been reasonably robust according to this metric, which analysts call “absolute mobility.” American families in their forties and fifties in their forties and fifties have about 30% more income than the generations before.
Comparing individuals’ wealth and incomes with their own parents’ inflation-adjusted incomes and wealth. There is also robust mobility in that area. Across the income distribution, an average of almost 85% of Americans tend to have higher incomes now than their parents had at the same age, according to the “Pew Charitable Trust’s Economic Mobility Project” (Siripuraru). Furthermore, 93% of American adults with parents in the bottom quintile earn more than their parents did when they were adults.
There is a well-documented connection between ethnicity, race, and inequality. Black households have barely increased their wealth since 1960, while white households have tripled their wealth. There has been a significant difference between black and white unemployment for decades. Corporate leadership, as well as high-paying professions, are underrepresented among Black Americans. Fortune 500 companies will have only four black CEOs by the year 2020. Researchers found that American Indian and black children are less likely to achieve economic mobility than Asian, white, or Hispanic children.
The legacy of slavery and systemic racism underlie U.S. inequality today. Housing segregation, a major source of wealth, resulted from a New Deal policy called redlining in the 1930s, which led to mortgage denials for Black Americans (Putnam). The Fair Housing Act of 1968 prohibits racial discrimination in housing, but its effects persist. The GI Bill, widely credited for boosting the middle class after World War II, was similarly unavailable to black Americans.
Children here inherit their parents’ relative income status more likely than in other countries since incomes at the top of the scale are “stickier.” Children in other countries have better prospects for economic advancement than children in American society because their parents’ money determines their futures more than their effort and abilities. It is believed that many countries, particularly those of Northern Europe, offer better economic opportunities compared to the United States. So, America no longer embodies the American Dream at its best.
High wages are usually earned by people working in jobs requiring high levels of education. Those in United States families with degrees earned nearly three times as much as those without, and those with a postgraduate earned nearly four times as much as those without. Compared to families without higher education, families with postgraduate degrees were nearly eight times wealthier in 2016. People without a high school diploma lived in poverty at a rate of 25 percent in 2015, compared to just 5% of people with a college diploma (Siriparu). While the United States attains higher education at higher rates than the OECD average, several other wealthy nations trail behind. Students’ debt should be eliminated, and tuition-free public colleges would reduce the cost of higher education and increase access. Warren and Sanders have proposed these policies to address the rising cost of college. Republican politicians, such as Trump, however, have advocated spending more federal funds on skills and trade training.
A further contributing factor to growing inequality is the repeated reduction in the top United States income tax rates over the last half-century. A top tax rate of more than 90 percent was in effect when President Kennedy entered the White House in 1961. There is a 37 percent top rate today (Putnam). Since President Ronald Reagan slashed taxes in the early 1980s, the top 1 percent’s share of income increased dramatically. Some experts argue that the gap between capital gains and income tax contributes to inequality since capital gains tax benefits the wealthy more than regular employment income.
According to Howard University’s Spriggs, a public posting of all jobs would help close the Black employment gap. Computer algorithms could help better match potential job seekers with job openings, and companies could encourage more Black students to establish themselves in Silicon Valley companies (Putnam). Additionally, Spriggs recommends that antidiscrimination laws be monitored and enforced more closely. It may also be possible to increase economic resilience by strengthening the social safety net, including a better sick leave policy, the provision of bigger unemployment benefits, and more job retraining programs.
According to experts, a lack of equality can stifle economic growth and foster political dysfunction. Richer households tend to spend less of their income compared to poorer ones, reducing the level of demand in the economy (DeVitis). It can also hurt the economy if low-income households have fewer opportunities. A weaker demand today and low growth in the future is a consequence of those at the bottom of the income distribution not reaching their full potential.
In conclusion, economic inequality reduces the ability to achieve the “American Dream” by creating racial and economic wealth gaps. The solution would be to enact a more progressive income tax, expand educational opportunities, and raise the minimum wage. It is the government’s responsibility to ensure the American Dream is valid and can be achieved. In addition to church-based social-welfare programs and grassroots outreach, government programs have marginalized or diminished the culture that supported them. There were multiple ways in which this process occurred.
Butler Stuart. “Can the American Dream Be Saved? National Affairs. Retrieved from https://www.nationalaffairs.com/publications/detail/can-the-american-dream-be-saved
Siripuraru Anshu. The USA inequality debate. Council on foreign relations. https://www.cfr.org/backgrounder/us-inequality-debate#chapter-title-0-9
Putnam, Robert D. Our Kids: The American Dream in Crisis. First Simon & Schuster hardcover ed., Simon & Schuster, 2015.
DeVitis, Joseph L, and John Martin Rich. The Success Ethic, Education, and the American Dream. State University of New York Press, 1996. Accessed 5 Aug. 2022.