Responding to Rising Inequality: Policy Brief

Recommendations

Recommendations 

Increase the Minimum Wage

  • Research indicates that minimum wage increases have not discernibly reduced employment. 
  • An increase in the minimum wage could lift nearly 1 million Americans out of poverty

Augment and Improve the Earned Income Tax Credit 

  • Receipt of the EITC is correlated with improvements in maternal and infant health and cognitive achievement in children, as well as improved economic mobility.
  • Expansion and improvement of the EITC could better support working families.

Tax Reform 

  • Raise marginal income tax rates on the highest earners.
  • Adjust capital gains tax rates so that they are commensurate with income tax rates.
  • Raise top federal estate tax rates to their pre-2002 rates to inhibit intergenerational wealth inequality.

Invest in Education

  • Early-childhood educational interventions, such as Head Start, have significant beneficial effects on educational attainment and earnings.
  • Areas with higher mean test scores and lower high-school dropout rates have higher rates of economic mobility. 

Build Assets and Wealth for Lower and Middle Income Americans

  • Shift savings incentives from tax deductions that disproportionately benefit the wealthy into refundable tax credits that provide more equal benefits across income categories.
  • Create new incentives for saving, such as a savings credit or a federal match for retirement accounts, in order to encourage asset building and facilitate wealth creation among lower and middle income households.
  • The government should continue to provide housing and credit on affordable terms to advance the opportunity for homeownership as government policy. Rather than wind down Fannie Mae and Freddie Mac, these government sponsored entities should continue to serve their purpose creating liquidity in the mortgage market.

Support Economic and Racial Integration in Neighborhoods and Schools 

  • Growing income inequality is contributing to increasing levels of segregation by income and a widening gap in student performance.
  • Areas that are less segregated by race and by class are correlated with increased economic mobility.
  • The home mortgage interest deduction subsidizes economic segregation. Lower the principal cap to a firmly middle-class home price range, and eliminate the deduction for the wealthiest home buyers.