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Inequality in America is a serious and growing problem that affects millions of people. According to the Pew Research Center, the highest-earning 20% of U.S. households brought in 52% of all U.S. income in 2018, more than the lower four-fifths combined. The U.S. also has the highest income inequality among the G7 nations, as measured by the Gini coefficient. Moreover, there are large wealth and income gaps across racial groups, which many experts attribute to the country’s legacy of slavery and racist economic policies. For example, the median black household income was 61% of median white household income in 2018. These disparities have been exacerbated by the COVID-19 pandemic, which has hit low-income and minority communities harder than others.
Income and wealth inequality can have negative effects on the economy, society, and democracy. Some economists argue that inequality reduces economic growth, innovation, and social mobility, and increases poverty, crime, and political instability . Some statistics that illustrate these effects are:
- **41.4%** of Americans are classified as low-income or low-income families.
- The top **1%** earners make **20 times** more than the bottom **90%**.
- The **1%** have drained **$50 trillion** from the bottom **90%** over the last **45 years**.
- From 2000 to 2020, the average salary for workers in America rose only **13.7%**.
- Men earn an average of **37%** more than women.
Some political scientists warn that inequality can erode trust in democratic institutions, fuel populism and extremism, and undermine the rule of law . President Joe Biden has proposed to address inequality with new social spending financed by higher taxes on the wealthy and corporations, but he faces opposition from those who say his plans are too costly or unfair.
However, there are other possible solutions to inequality that have been suggested by experts and advocates. Some of these are:
- **Increase the minimum wage**. Research shows that higher wages for the lowest-paid workers has the potential to help nearly 4.6 million people out of poverty and add approximately $2 billion to the nation's overall real income.
- **Expand the Earned Income Tax Credit (EITC)**. In recent years, the EITC has been shown to have a positive impact on families, lifting roughly 4.7 million children above the poverty line on an annual basis. Increases in the EITC can pull more children out of poverty while providing more economic support for the working poor, especially single parents entering the workforce.
- **Build assets for working families**. Policies that encourage higher savings rates and lower the cost of building assets for working and middle class households can provide better economic security for struggling families. New programs that automatically enroll workers in retirement plans and provide a savings credit or a federal match for retirement savings accounts could help lower-income households build wealth.
- **Invest in education**. Education is one of the most important determinants of economic opportunity and mobility. Policies that improve access to quality education at all levels, from early childhood to college, can help reduce inequality and promote human capital development. Examples include expanding universal pre-K programs, increasing funding for public schools in low-income areas, providing free or subsidized college tuition, and supporting vocational training and lifelong learning.
- **Make the tax code more progressive**. The tax system can play a key role in redistributing income from the rich to the poor and providing public goods and services that benefit everyone. Policies that make the tax code more progressive include raising marginal tax rates on high incomes and wealth, closing loopholes and deductions that favor the wealthy, taxing capital gains and dividends at ordinary income rates, implementing a financial transaction tax, and strengthening inheritance taxes.
- **End residential segregation**. Residential segregation by race and income creates unequal access to opportunities and resources, such as jobs, education, health care, and public services. Policies that aim to end residential segregation include enforcing fair housing laws, expanding affordable housing options, providing housing vouchers and mobility counseling, investing in public transportation and infrastructure, and promoting mixed-income communities.
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