3 Kinds of Policies That Could Reverse Income Inequality in the US

  • Paul Constant is a writer at Civic Ventures and the cohost of the “Pitchfork Economics” podcast.
  • He spoke with Dr. Faiza Shaheen of the Pathfinders for Peaceful, Just and Inclusive Societies.
  • Its latest report showed three kinds of policies capitalist nations used to shrink inequality.

For many, massive and growing income inequality feels like a fatal flaw baked into capitalism that ensures the rich get richer while the poor get poorer. But in the latest episode of “Pitchfork Economics,” Dr. Faiza Shaheen said that while income inequality has exploded in the US and the UK, it isn’t skyrocketing in other capitalist countries around the globe.

As the program head for the inequality and exclusion grand challenge, Shaheen was charged by the 39 countries of the United Nations subgroup Pathfinders for Peaceful, Just and Inclusive Societies to measure inequality around the world and propose policy solutions to create a more equitable and sustainable world by 2030. Her organization just released a new report on economies around the globe that shows income inequality isn’t a necessary byproduct of capitalism. Rather, the report found, it’s the result of certain policy choices — and in fact, it can be reversed through specific policy choices as well.

The new report found that roughly a third of the world’s capitalist nations are currently suffering from intense inequality, about a third have seen their levels of income inequality stay steady since the year 2000, and another third have actually driven inequality down, closing the gap between their nation’s wealthiest households and their poorest.

Shaheen admitted that some of that decline in inequality comes from countries that had started from high levels of inequality, like Peru, Bolivia, and Argentina. It’s impossible to compare inequality in the United States to those nations, she said, which have thrived in the age of globalization and its increased distribution of technology.

But she added that other middle-income nations, like Botswana and Sierra Leone, had actively tried to reduce inequality and succeeded in ways that the US and UK could emulate. Specifically, Shaheen said, “policy was undoing some of the inequalities that they had built up in their system.”

Shaheen said nations that successfully reduced inequality employed three specific kinds of action.

The 3 criteria for countries to reduce income inequality

The first type of action was “policies that elicit very clear, visible material change” for the majority of citizens, she said, such as welfare programs, affordable or free healthcare, and, perhaps most critically, “good job creation.” When people see that the government produces material benefits, that creates a positive feedback loop, she added.

The second action item is less economically straightforward, Shaheen said, but involved governments actively trying to bridge divides between groups. Studies have long shown that racial and political unrested rises in areas with growing income inequality. The report argues that the opposite is equally true: Inequality shrinks in nations with “active efforts to build solidarity between groups and to address historic prejudices,” Shaheen said. Those efforts can take many different forms, from politicians rejecting divisive and inflammatory language all the way through serious policing and criminal-justice reform.

And lastly, governments in areas with reduced inequality rebuilt their credibility with the public by “tackling corruption,” Shaheen said. In unequal societies, people believe that wealthy elites have access to leaders and legal privileges that most citizens don’t. Citizens in more equal economies, meanwhile, believe that the government treats everyone the same, and that belief is backed up through transparency mandates in government and the financial industry, and through a strong free press.

One policy to rule them all: a solidarity tax

“Visible change, building solidarity, and securing credibility” are essential to reducing inequality, Shaheen said. But one policy that the report said simultaneously promotes all three of those criteria is the idea of ​​a “solidarity tax” — a short-term tax on wealthy individuals or corporations to rebuild infrastructure, supply-chain, and social-service programs that have been stressed and depleted during the pandemic.

From German reunification to Japan’s reconstruction after World War II, Shaheen said that solidarity taxes have been successfully used throughout most of the 20th century “essentially to correct for inequalities that existed, and to also build a narrative of depending on each other, of needing each other, or giving back to society to make things fairer.”

In the wake of the pandemic and one of the most politically tumultuous decades in our history, the United States is in desperate need of some sort of policy intervention to curb inequality and reinforce that national sense of togetherness. Even before the pandemic, the St. Louis Fed reported that the United States’ income inequality was more in line with poor and politically unstable third-world countries than with similar developed and wealthy nations — and that was before American billionaires raked in an additional $1.7 trillion during the pandemic.

The US needs to be reminded that when societies are bound together through understanding, purpose, and prosperity, everyone is happier — not just the wealthy few at the top.

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