An income gap is sufficiently killing the American economy and the Government should step in to help fix this issue. Poverty and the unequal distribution of wealth is a major issue that is killing our everlasting country. American citizens are extensively suffering due to the unequal distribution of wealth and is causing no impact on the top 1% of wealthy individuals. The extreme gap between the amount of income the 1% makes and the 99% of Americans make is sufficiently causing the middle class to disappear rapidly. “The fact that tens of millions of workers will still be trapped in low-wage hell while a sliver of Americans live better than the kings of old will seem like a minor detail.” (David Callahan) Hard working individuals are treated unequally in retrospect to the little amount of income they receive compared to the 1% community and the limited amount of work they need to complete to be considered the 1%.
Over 480 different tax forms exist for business professionals and individuals (Armey 2). The tax code also discourages workers from taking risks in the business world and crushes any entrepreneurial spirit. Many Americans have become frustrated with the high tax percentages and low exemptions as well. Tax percentages are some of the highest ever at an average rate of 39.6%. Only in 1981 when they reached 70 %, and during World War II at 94%, were American taxes any higher (Bartlett 2).
The gap between the rich and poor that has continuously increased throughout the decades makes it even more challenging for an individual to jump from the poor class to the rich. The rich, receiving large tax breaks, stay rich. This leaves the Americans in the poor class to carry the burden of the heavier taxes, leaving them in the same class with little to no hope of becoming rich and obtaining the American dream. In addition, delaying and denying citizenship to immigrants hinders their ability to obtain wealth and the American dream. Low wages also decreases the ability for many Americans to gain a higher education, decreasing the likelihood they will receive high wages and the American dream.
Would our small, financially challenged country really be able to stand on its own feet against the bigger countries in the global market? For over 300 years we have been part of Great Britain’s success but now in a time of economic meltdown, people have a growing want for independence. To start, let’s take a look at why our country can’t afford (and will never be able to afford) independence. The credit crunch occurred when our banks were forced to cancel debts after them carelessly giving money to people who could not repay their loans. This forced the government to use public money, to keep the banks afloat and resulted in decreasing our budget by billions of pounds (also causing inflation levels to rise).
This economic turmoil started with home loans and the credit card industry. We have a generation that never understood how to use credit properly and we now have higher claims of bankruptcy than we have ever had as a nation. The recession started because our nation was growing too fast for itself, people were taking out loans for homes they could not afford and the banks were letting them. We also have had a huge credit issue lately; I have even seen it personally with my parents, their interest’s rates have all gone up. Real credit cards, not debit with a credit logo, are a huge responsibility, which many people have proven they cannot handle.
Due to the immense derivative (OTC- Over the Counter) losses banks are simply faced with using taxpayer bailout money to stay afloat and continue manufacturing these exotic instruments that Warren Buffett has labeled as “Weapons of Mass Financial Destruction” . These complex, high risk instruments have accounted for much of the banking system’s profits over the past decade. 3. Currently it is politically unacceptable for interest rates to increase, therefore bank profits from home loans will continue to remain insignificant to improving balance sheet health. Furthermore with the failure of the US Government’s loan modification program, (out of the 4 million homeowners at risk of foreclosure only 30,000 have received assistance) banks will not willingly sacrifice the principle value of the home in order to keep homeowners with negative equity from simply walking away.
As esteemed journalist Tom Piatak wisely puts it, “The trickle of outsourcing threatens to become a flood.” His words speak the truth as outsourcing has left United States’ workers jobless, and it continues to increase the unemployment rate every year. During February of 2009, American workers lost a record 651,000 jobs alone, increasing the unemployment rate to 8.1 percent, the highest it has been in 25 years (Katel). Multinational corporations, hoping to cut down costs and stay profitable in the market, outsource by exporting American jobs to third-world countries such as China and India. It may seem noble that outsourcing provides third-world countries with job opportunities, but the United States’ markets and industries are greatly affected. Outsourcing is harmful to the United States’ economy because it paves the way for job losses, decreases product consumption, and widens the gap between the rich and the poor.
Welfare has been pushed to the limit, forcing hard working people to pay more taxes, and leaving the government no choice but to make tougher laws to decrease the number of citizens on welfare. At one time a good plan for underprivileged Americans, welfare was constantly misused, forcing the new reforms and much debate. The new reforms, put into action by President Bill Clinton, have succeeded in dropping the recipients off the rolls. Dan Froomkin, of The Washington Post, says that under the old system, welfare was handed out to anyone for any number of years. The new system, however, requires most recipients to work within two years of receiving assistance, and limits most assistance to five years total (internet).
The era of volatility has created a shift from America being the middle-class society to simply rich or poor (Sachs, 2011). A gap this large has not been experienced since the 1920’s (Sachs). “The top 1% of households takes almost a quarter of all household income” but an economy this top heavy will not be able to succeed (Sachs, 2011, p. 30). The working classes are struggling with housing, wage, and employment issues. Rich individuals are ignoring these troubles, shipping their business operations out of the country, thus furthering the downward spiral of the economy (Sachs).
The bubble forced banks to give out homes loans with unreasonably high risk rates. The response of the banks caused a decline in the amount of houses purchased and “a crisis involving mortgage loans and the financial securities built on them” (McConnell, 2012 p.479). The effect on the economy was catastrophic and caused a “pandemic” of foreclosures that effected tens of thousands home owners across the U.S. (Scaliger, 2013). The debt burden eventually became unsustainable and the U.S. crisis deepened as the long-term effect on bank loans would affect not only the housing market, but also the job market. What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy.