How Do We Fix Income Inequality And Boost The Economy ?

(This chart was found at The Big Picture.)

It is just a fact that, because of the economic polices we have been following for the last 35 years, the United States has become one of the most unequal countries in the world economically. There is a vast gap between the richest Americans and the rest of America in both wealth and income. The bottom 90% of Americans split up only 51.8% of the country's total income -- while the top 10% get 48.2% of the income, the top 5% get 36.5% of the income, the top 1% get 20.9% of the income, the top 0.5% get 16.8% of the income, the top 0.1% gets 10.3% of the income, and the top 0.01% get 5% of the income.

And in addition (and possibility because of this inequality), our economy still has not recovered completely from the Bush recession. GDP growth is not high and unemployment is still too high. And in the years since the recession ended, about 95% of the rise in income has gone to the richest Americans. Worker wages are stagnant as inflation grows, the middle class is still shrinking, and poverty remains at an all-time high. How can we fix this -- both the income inequality and the faltering economy?

The Republicans say the answer is more deregulation and more tax cuts for the rich and the corporations. But that is what we have been doing for the last 35 years, and it's what got us into this economic mess in the first place. Doing even more of it will not fix the economy, reduce unemployment, or reduce inequality. It will only further fatten the bank accounts of the already rich.

It will not boost the economy because the rich already have the money to buy anything they want. Giving them more money will not increase their spending -- and even if it did, there are not enough of them statistically to make a difference in our huge economy. And the GOP meme that giving more to the rich will lower unemployment, because it will spur more hiring, is just wishful thinking.

The tax level has nothing to do with hiring. History has shown us that. In the 1950's, the taxes were high and there were many jobs available (and low unemployment). When taxes were cut substantially for the rich during the Bush administration, the number of new jobs created was among the lowest in any administration. There is only one thing that creates new jobs -- an increase in the demand for business goods/services.

So how can we fix income inequality and boost the economy (causing a rise in business profits and a reduction in unemployment)? Can we do both at the same time? Yes, we can do both at the same time. We can do it by doing three simple, but effective things.

* First, we can raise the minimum wage to a livable level. This will put more money in the hands of millions of people -- people who will have to spend most of that new money (since they are currently struggling to get by). This substantial increase in spending will increase the demand for goods/services -- and that will increase business profits and create new jobs (to service the increased demand). It will also remove many people from the government assistance rolls as a beneficial side effect.

* Second, we could expand Social Security benefits. Currently, the average Social Security monthly benefit is about $1100, meaning half of all who receive those benefits make less than that each month. These people are also struggling to get by, and they will also spend the increase. That will also boost the economy -- increasing business profits and creating jobs to meet the increase in demand for goods/services. This could easily be paid for by raising (or eliminating) the cap on the amount of income subject to FICA taxes -- which would not affect the working class or middle class at al, but just make the rich pay the same percentage as everyone else.

* Third, we could slightly raise the tax rate for the rich and remove unnecessary subsidies for corporations. Currently, the super-rich pay a smaller percentage of their income in taxes than many in the middle class, and many corporations pay no taxes at all (even though they make billions in profits).

There are other things that could be done (strengthen unions, stop the offshoring of good American jobs, give college students free tuition in public schools, fix our crumbling infrastructure, go to a single-payer health insurance system, etc.), but just doing these three simple things would reduce income inequality and boost the economy significantly -- increasing business profits and reducing unemployment.

This is what we should be doing right now -- but all the Republican-controlled Congress wants to discus is cutting taxes for the rich and the corporations, while punishing all other Americans. We need to vote them out of power in 2016. That's the only way we can return to a sane and fair economic policy.