The income inequality is on rise not only in a developing economy like India, but also in a rich country such as United States. It can be argued that trickle down approach of economics pursued by President Trump and his advisors is not helping the cause either. This approach has encouraged lower taxation to the corporations and the top management of it. The idea is lower taxation will enhance the wealth of the corporate promoters, which in the long run will trickle down to the low income people in the form of employment. However, it is very difficult to predict when the trickle down takes place and how much trickle down remains. For example, more wealth created by a corporation because of lower taxation can be invested in China that will further increase the wealth of the promoters, but no additional jobs have been created in United States because of this.
According to a survey conducted by Pew Research Center last August, Americans increasingly want raise of taxes on corporations and higher income earners than otherwise. However, the reality is just the opposite of it. The elected representatives of those same people have agreed to a tax law that drops the corporate tax rate to 21 per cent and also cuts the highest individual tax rates.
There are more perils in the trickle down school. The higher inequality produced by this approach cuts GDP growth rates. Further, the human capital level is depleted with the decrease in the education opportunities for the poor. The chance of a financial crisis also increases by increasing leverage.
California is a state where the income divide is most varied. Some suburbs of Los Angeles such as Bel Air have an average yearly income of more than $200,000. California also features some most acute clutches of poverty seen anywhere in United States. The state accounts for 14 percent of all high level poverty in United States. It is also estimated that four out of ten residents are living in or near poverty. A large section of America’s homeless population (22 percent) resides in California. The large immigrant population, liberal welfare policies of the state and conducive climate contribute to the high homelessness.
Thus, the income divide in United States is rising and even by the current estimates, it is the highest among the developed nations. A soggy outcome of capitalism, this divide has the potential of a backlash that United States has not seen for centuries!