Income Inequality: Income Taxes, Income Maintenance Programs and Subsidized Services - Coursework Example

Order 247405 Outline Thesis ment: Everyone has concepts resolving income inequality, but government has the better idea of income redistribution through collection of income taxes, supporting income maintenance programs, and subsidized services. I. Observations about income inequality began since men of wealth and influence started to employ workers for production of goods and services. A. Most people are unaware that income inequality exists. B. Income inequality depends on wage rates, unequal endowments, and choices. C. Everyone has theories resolving income inequality, but government has the better idea of income redistribution. II Research reveals causes of inequality of income among citizens. A. Parkin identified three main factors that grounds inequality of income. B. Wages rates are unequal because of differences in skills. C. Sex and race influence wage rates. D. Differences in the types of jobs influence wage rates. E. Individual or family income is primarily influenced by resource prices, resource endowment as well as individual choices. III Research reveals that government creates policies that would ensure redistribution of wealth among its citizens to strike an economic balance in society. A. Collecting income taxes, sponsoring income maintenance programs, and subsidizing services are governmental policies for redistribution of wealth. Name: Instructor: Martine H. Saboo Class number: Microeconomics 202 002 Date submitted: INCOME INEQUALITY: INCOME TAXES, INCOME MAINTENANCE PROGRAMS AND SUBSIDIZED SERVICES Introduction At the end of the day, after a month-long work, an ordinary employee, a North American citizen, began to have a problem. People kept interpreting this behavior as dissatisfaction, but this was not discontent. Fairly soon the employee realized what was happening. When most economists published their reports, they showed the factors contributory to the inequality in income. Apparently, the ordinary employee overlooked the realities that there is such a thing as unequal wage rates, unequal endowments, and choices. Everyone has concepts resolving income inequality, but government has the better idea of income redistribution through collection of income taxes, supporting income maintenance programs, and subsidized services. Body Obviously, observations about income inequality began since men of wealth and influence started to employ workers for production of goods and services. Economist Michael Parkin studied the field. He became interested in how inequality of income among citizens was resolved by governmental policies. In his fittingly titled book Microeconomics, Parkin in 1998 clearly explained income redistribution. As Parkin’s book title indicate, most people should be aware that the United States governmental policies ensures income redistribution. Inequality of income results from unequal wage rates, unequal endowments, and choices. ”Wages rates are unequal because of differences in skills or human capital” (Parkin, 369). Using the Bureau of Census, Statistical Abstract, dated 1996, 116th ed (CD-ROM), Parkin in 1998 showed similar sex and race differentials figures as percentage of white male wages below: Sex and Race Differentials Year Income Ratio Black men White women Hispanic men Black women Hispanic women 1955 60 65   34   1960 66 60   42   1965 62 58.5   39.5   1970 66 59   50   1975 73 58 72 56 49 1980 71 59.5 71 57 50 1985 70 71 65 57.5 53 1990 72 72 64 61.5 53 1995 73 74 62 61.5 54 The degree of differences above arise because of differences in the types of jobs, probable bias, differences in human capital and differences in the degrees of specialization. Although, these disparities may perhaps have carried on for many years as shown on the table, the scale may have changed over time (Parkin, 350). For example in job types like electrical engineering work or computer engineering work, or mechanical engineering work, majority male workers prefer the task rather than the female. So, the male earns better in this instance than the female. Recent developments however showed that most of the jobs that have been dominated by male workers had already been infiltrated by the females. On the other hand, it can not be denied that many white men and women still earn better than workers from other races. This is usually taken under the category of discrimination (Parkin, 351). Human capital differences are seen through three fundamental indicators. These are time for schooling, time for work experience, and amount of job interruptions. Additionally, differences in specialization are other contributory factors. For example, in a family, the husband goes to an office to work for a regular pay, while the wife take care of the children and the domestic needs. The line graph above clearly reinforces the table showing sex and race differentials on income ratio from 1955 to 1995. It can be noted that the Hispanics among others joined the scenario in the 1975 only (Parkin, 368). Individual or family income is primarily influenced by resource prices, resource endowment as well as individual choices (Parkin, 368). Obviously, a high–end company, producing high-end goods, pays high-end wages. So, its product would command high-end prices. If the goods produced this way is within the category of consumption, the resource price would then be limiting to ordinary wage earners. On the other hand, there are also individuals and families who are considered fortunate for the bequest they get from sheer luck or family. Finally, the choices that individuals opt do a lot of influence on their income. For example, there are those who imagine that there is really nothing much in schooling. So, most of them landed in a ‘blue collar’ job with insufficient earnings. Income (thousand of dollars per year) Percentage of households 0 0 0 0 11 7.1 31 2.2 45 1 Source: The table and the corresponding graph above as illustrated by Parkin, (368) “the distribution of income is unequal and is not symmetric around the mean income”. Clearly, majority of the families in the society have an income way below the mean (Bardhan and Udry, 100). So, only few are earning just above the mean. Moreover, very few families earn well above the mean. This is how income is unequally distributed within the society. In order to strike an economic balance, government creates policies that would ensure redistribution of wealth among its citizens. This is usually done by collecting income taxes, sponsoring income maintenance programs, and subsidizing services. However, the type of income tax often varies with country or state. It can either be progressive income tax, regressive income tax, or proportional income tax (Parkin 172). Progressive income tax levies on income at marginal rate. In other words, change in income would mean change in tax rate. According to Taylor (476) “a tax is progressive if the amount of tax as a percentage of income rises as income increases”. Regardless of the type and amount of tax levied upon goods and services, governments’ sole purpose it to collect revenue (Taylor, 477). These make up the funds that will be allocated for sponsoring income maintenance programs, and subsidizing services (Chatterjee, Prabirendra, and Sarangi). Obviously, wealth is redistributed in this aged, the survivors, and the disabled. Plus, retirement benefits, survivors benefit, and particular manner. For example, government sponsor social security programs for the monthly pensions in addition to health insurance and Medicare. Despite of this, government doles out money to those who unfortunately lost their jobs. Additionally, government sponsors welfare programs for Medicaid, food stamp, temporary assistance, and supplementary security income. Moreover, formal education also gets a chunk of government spending (Parkin, 370). From elementary school to college, government subsidize schools continuously to afford cheap education to the needy, ensuring equal rights and opportunities to education and eventual work despite family financial lack. Conclusion Income inequality is brought about by such factors as disproportionate take-home pay rates, lopsided bequest, and individual preference. Take-home pay rates are disproportionate because of variations in proficiencies. Bequests are lopsided because there are those who are fortunate to inherit some wealth from their family or friends. Given the facts above, people are fortunate to have thought about system and organization for in it they have evolved a scheme of managing resources. Government then, through its revenue driven policies ensures redistribution of wealth through sponsorships of income maintenance programs, and subsidy to basic services. Reference Baumol, William, and Blinder, Alan. 2001. Economics: Priciples and Policy. 8th ed. London: Harcourt Inc. Bardhan, Pranab, and Christopher Udry. Development Microeconomics. New York: Oxford University Press, 1999. Chatterjee, Prabirendra, and Sudipta Sarangi. The Economics of Microfinance. Southern Economic Journal 73, no. 1: 259+. 2006. Taylor, John B. Economics. 5th ed. Geneva: Houghton Mifflin Company. 1999. Parkin, Michael. Microeconomics. 4th ed. England: Addison-Wesley. 1998. Read More