Income inequality in the US has been increasing for a generation. The hare of pretax income received by top 1% of earners roe from 7.8% in 1973 to 17.4% in 2010. The
Gini coefficient—indicates that inequality for the entire range of income recipients rather than only the top 1% has risen by 26% since the early 1970’s. Income inequality after taxes is substantially diminished because of the offsetting effects of taxation. The top1% of income recipient’s pay 37% of total tax revenues, and the top 5% and 20% pay 59% respectively. The bottom 50% pays little or no income taxes. Pretax income inequality has been driven by long-term societal trends that are numerous, complex and hard to change. The drivers include education, parenting and family structure, neighborhood, immigration, globalization and IT-based technology. Poverty typically and strongly impedes emergence form it.
Recession eased monetary policy (aka-Quantitiative Easing) injected as much as $4 trillion into the monetary base by Federal Reserves purchases of mortgage-backed securities in order to lower long-term interest rates. The results ha been an increase in income inequality in recent years as an unintended side effect of monetary easing, apart from the additional to the long-term trends mentioned earlier. The process has been accompanied by a surge of equity markets to record highs (up 30% in 2013).
Since the Great Recession the share of wages in national income has decreased rapidly from 65% in 2008 to 61% in 2013.
It represents $600 billion less for the wages and salaries of the relatively numerous middle and lower income recipients and correspondingly more for the much less numerous form recipients. Although inequality has also increase among recipients of wages, the far smaller number of profit recipients has had a dominant effect on income inequality in recent years. Increased inequality is not simply an unintended consequence of eased monetary policy; it is also quite remote form the prescribed mandate of the Federal Reserve.
The more one is concerned with slowing, let alone reversing, the rising pace of inequality; the sooner on should favor “tapering” quantitative easing. The more one is concerned with stimulating growth, the more one should favor continued easing.
Accurate measurement of inequality it itself problematic
The Gini coefficient, which measures the gap between each percentage of the population and the corresponding percentage of income (or wealth) received by that percentage. If 5% of income and all the population percentages receive 5% of income and all other population percentages receive the corresponding income percentage, then the Gina coefficient is 0, indicating maximum equality of income distribution and no gap between population percentages and income percentages..
Is increased income inequality attributable more to such positive effects as those resulting form Steve Jobs and Apple, Bill Gates and Microsoft, or instead to negative effects such as those emanating from the likes of Ken Lay, Jeff Skilling and Enron, Dennis Kozlowski and Tyco and Bernie Madoff.
Gini coefficients for the US lies midway between .45 and .49, having risen form a low of .39 in 1968 to a high of .48 in 2011. The Gini coefficient estimate for China is higher than that of the US as is the estimate for Brazil. Income inequality is substantially less: perhaps as much a 10% points lower than the before-tax estimate.
Source—weekly standard, charles wolf