Income Inequality In The Economy

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As a technique to recover from the Great Recession, the Federal Reserve has implemented an easy money policy which has added more than $1 trillion to income inequality (Belotti and Farley). One of the primary inequality factors under monetary policy has allowed programs such as quantitative easing to artificially injected money into the economy causing the equity markets to boom and interest gained from bank accounts to tumble. The prices of stocks, floating on this giant bubble, has exasperate the inequality problem. Another factor under fiscal policy has allowed the rich receive many tax breaks and loopholes that allow the wealthy to get around the taxes they are required to pay. The wealthy display rent seeking behaviors that has politicians …show more content…
“A recent report from the Pew Research Center found that the wealth of the richest 7 percent of households climbed about 28 percent from 2009 to 2011. For the remaining 93 percent, average wealth dropped about 4 percent” (Lowery). This is largely due to the rapidly growing stock market with the QE money artificially stimulating it, “Since the depths of the crisis, the Dow Jones industrial average has more than doubled, increasing about 16 percent this year [2013] alone” (Lowery). This would be great if each of the quintiles held equal stock market share, but according to recent research by the New York University economist Edward Wolff, the richest 10 percent of households own more than 81 percent of stocks. Blue chip stocks like Berkshire Hathaway Inc, BRK.A, went from $96,540 to $219,000 from the start of QE to now. These stocks are expensive enough where only the rich are able to invest and they are …show more content…
“The 10 largest breaks affect individual tax bills and taken together will cost the Treasury about $925 billion in the current fiscal year” (Montgomery). These deductions often benefit the wealthy and prosperous corporations that take advantage of the system. Programs like home mortgage interest deduction, Publication 936 (2013), allow those wealthy enough to buy a house to receive tax breaks. The program is even skewed so, “a whopping 75 percent of this deduction goes to the top 20 percent of earners” (O’brien). Any tax consists of a base, or what is being taxed, times a rate. The income tax base is "income," which comes from labor or wealth. “Income from labor is hard to hide and easy to tax, as the middle class knows full well. Income from wealth is easy to hide and hard to tax -- and perfectly legally” (McCaffery). Ordinary taxpayers pay tax on their earnings at ordinary income tax rates up to 35 percent. The really rich, however, are different from ordinary in that they tend to make most of their money via investments instead of standard paychecks -- meaning most of their money is taxed at 15 percent (Bell). Even with the deductions and loopholes, the statutory individual income tax rate applied to the marginal dollar of the highest incomes has fallen substantially meanwhile the corporate income taxes

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