Equity-Driven Tax Reform to Reduce Income Inequality 

The United States tax policy allows for high income individuals and corporations to avoid paying their equitable share of taxes via the utilization of loopholes. To further reduce income inequality after taxes in the US we must create a new, revised tax policy reform to seal these cracks in our tax policy, ensuring fair contributions from all citizens and even possibly facilitating downward redistribution. 

The issue resulting from our current tax policy is that it allows for high-income individuals to exploit intricate provisions to minimize their tax obligations. This practice not only leads to substantial revenue shortfalls for the government but also contributes to the emergence of the "submerged state” in the US. This phenomenon, characterized as the blinding of the general public lens to public services to the point of privatization, allows for income inequality to continue to grow in the United States. High income individuals typically participate more in politics according to the Civic Voluntarism Model, (Verba, Schlozman, and Brady 1995). This is because wealthier people have more resources and time for politics, while other socioeconomic groups must prioritize different needs. Wealthy people also have better education and connections, forming a cycle that makes policies cater to them, creating more inequality.  In this case, the rich take advantage of the provisions and become richer and therefore more politically involved while those in lower socioeconomic groups are perpetually stagnant in their socioeconomic position. Inequality is typically measured by the Gini index, which is a numerical measure that indicates the level of income distribution inequality within a population. According to the United States Census, the Gini Index annual percent change of the Gini Index in the United States has steadily been increasing since 2018, with the Gini Coefficient increasing from .378 to .414 over the same span of time. In comparison, other wealthy countries such as Denmark and Iceland pose scores of .282 and .261 respectively, while also maintaining a decreasing trend in their Gini Index. This fact alone highlights the lag in economic progression in the United States compared to our peer countries and the need for reform in our economic policies. 

In order to reduce the income inequality in the United States I propose that we close these loopholes in the tax policy that allow for exploitation by the wealthy and use the increased tax contribution to facilitate programs that promote economic mobility for low-income citizens. This approach is supported in the same previously mentioned examples of Denmark and Iceland, where similar policies have allowed for great success in limiting inequality in their own countries by ensuring that all citizens pay their fair share of the tax burden. In Denmark, the tax system consists of  highly progressive income tax rates, with top earners contributing significantly more than lower income individuals. For example, individuals with an annual income exceeding DKK 498,900 (about $80,000 USD) are taxed at a rate of 55.8% while the lowest tax bracket is taxed at a rate of 38.4%. The tax revenue is used to fund welfare programs that offer universal healthcare, education, and social services. These robust social programs and the immense public funding also allow for leeway in economic opportunity for all citizens, by enabling the establishment of programs such as public child care support, which enables many mothers to participate actively in the workforce. Once again in the case of Iceland a similar approach has been adopted. Iceland implements a progressive taxation system where individuals with an annual income of ISK 8,801,282 (about $70,000 USD) or higher are subject to a 46.24% tax rate while the lowest tax rate is 37.3%. Iceland also allocates a substantial portion of its tax revenue to social programs, with health care and education systems renowned for their accessibility and quality. Furthermore, Iceland provides substantial parental leave, allowing for gender equality in the workforce. As mentioned previously, Denmark and Iceland pose Gini Index scores of .282 and .261 respectively while the United States is rated at .414. As a citizen of the United States, I say that alterations of the tax policy must be made to ensure that all individuals are held accountable for paying their fair share of the tax burden. This will allow us as a country to follow the footsteps of our global peers and implement social programs to help fight against income inequality.

The proposed solution of closing tax policy loopholes and using the increased tax contributions towards programs that promote economic mobility holds a promising outlook. The makeup of the policy aligns with both recent international and domestic political trends of the growth of Democracy and efforts for universal equality. At the global level, the proposal resonates with the growing focus on addressing income inequality, as adopted by prominent organizations like the United Nations, IMF, World Bank and also in the examples outlined in the memo of Denmark and Iceland. On a national scale, it corresponds to the widespread societal call for fairness and equal opportunities, evident in not only the support garnered for policies aimed at reducing income inequality such as the case of Joe Biden’s tax approach, which intended to increase taxes for high income individuals and corporations, but also in the median of recent social movements that have been promoting all forms equality in the United States regardless of identity. To make these reforms palatable, policymakers should implement informative materials to educate individuals that may be in opposition of the policy of the importance of reducing income inequality. Policymakers should also be extremely transparent and clearly portray how the increased funds from the reformed policy will be allocated for the greater good of the American people.