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INCOME INEUQLITY
Abstract
Recently, inequality is really a huge issue that existed in the United States. The main
reason that leads to the income inequality is the wealth gap between the rich and the poor.
Once the income inequality is solved, the society will be well developed and a growth will be
seen in the economy. This paper centers on estate tax, discussing whether the estate tax can
affect the income inequality in a positive way. Although the estate tax has been controversial
for many years and many experts doubt its usefulness, it really plays a very important role in
determining the income inequality. After researching, the estate tax that imposed on rich
people can reduce the income inequality by transferring less money to the next generation so
that the nation will gather enough money to redistribute the fortune to balance the inequality.
Does Estate Tax Affect the Income Inequality in the United States?
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INCOME INEUQLITY
A Review of the Literature
Recently, the Organization for Economic Cooperation and Development (2013) reported
that “the richest 10 percent in OECD countries have an average income 9.5 times than the
poorest 10 percent” (p.1). It shows that the gap between rich countries and poor countries is
enlarging. Moreover, Emmanuel Saez (2012) stated that “a majority of the income gains over
the past eighteen years has been captured by the top 1%” (p.1256). As Saez (2012) has
explained that “during the Obama economic recovery (2007-2009), 93 percent of the income
gains went to the top 1 percent of the citizens” (p.1258). The data shows that the income
inequality has become a huge issue in the United States and it is time for the American
government to take actions. One effective approach for solving income inequality is using
estate tax; however, there is still a heated debate on whether to abolish or to reform the estate
tax due to its controversial characteristic. Some groups of people consider the estate tax as a
useless tax that only can lead to the recession of the society. However, others regard the estate
tax as a positive reform in reducing the income inequality in a nation. This paper centers on
the estate tax and discusses its efficiency in affecting the income inequality. That’s to say, the
estate tax can not only balance the wealth gap between the rich and the poor through the way
of redistributing money by the government, but also give a fair chance to all so that everyone
will be at least equal in pursing their success at the beginning.
Until recently, income inequality is still a destructive problem that can imperil both the
growth of the economy and the development of the society, which in turn may lead to the
recession of the nation. According to the study, “as has been extensively chronicled
elsewhere, it is indisputable that there is a growing income and wealth inequality in the
United States.” (Caron &Repetti, 2013, p.1257). Moreover, income inequality is like a huge
menace that pushes so many burdens on both individuals and society so that it should be
taken into consideration as soon as possible whenever it exists. As Caron and Repetti (2013)
has explained that “inequality has significant adverse societal consequences and the higher
degree of a nation’s income inequality, the greater health and social problems it will arouse”
(p.1261). Consequently, those problems will lead to lower educational opportunities and less
job experiences, which may cause more students to drop out of school so that the stability of
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INCOME INEUQLITY
the society will be fluctuated. That instabilities will impair people’s motivation in creating
fortune, and finally the whole nation will be in danger.
The effects of income inequality can also be explained by empirical studies. As pointed
out in Caron’s (2013) article income inequality has real bad influences on a nation’s
economic growth, and he suggests that “high concentration of wealth correlate with poor
economic performance” (p. 1266). Furthermore, income inequality can also arouse a nation’s
political instability. Thorbecke (2003) concluded that “high inequality could lead to a lower
level of democracy, high rent-seeking policies, and a higher probability of revolution”
(p.1485). That means inequality will destroy a nation’s social cohesion which will in turn be
harmful to the nation’s democracy, and thus people would pay less attention to their nation’s
construction so that the nation’s productivity would be declined.
As discussed in the previous paragraphs, income inequality is really a burning question
that needs to be solved. The most common way that experts suggest is using estate tax.
