inequality in the us essay

Page One Economics ®

Income and wealth inequality.

"For we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America's prosperity must rest upon the broad shoulders of a rising middle class." 

—President Barack Obama 1

Introduction

There are many different types of inequality among people: educational attainment, work experience, and health—to name a few. This essay discusses economic inequality: its causes, measurement, and the potential impact of its growth in the U.S. economy.

Economists directly link differences in educational attainment and work experience, also known as human capital, to differences in economic outcomes. That is, formal education and job skills determine how likely a person is to find and hold a stable job that pays good wages. The flow of money from wages is the most important source of income for most people. Over time, regular income from employment allows people to own assets such as a home or a retirement financial portfolio. That stock of assets is called wealth .

Data collected by federal organizations such as the Census Bureau and the Board of Governors of the Federal Reserve System (BOG) allow us to measure how unequal the distributions of income and wealth are in the United States. Those data show that, since the 1970s, some individuals and families are earning much more income and accumulating much larger amounts of wealth than the typical family does. 

Data reported by the World Bank allow us to compare the distribution of income across countries. As of 2018, the available data show large international differences in income inequality. Although not all countries in the world have data on income inequality, among those that do, the United States ranks among the top 25% most unequal.

What Causes Inequality?

The root cause of differences in income and wealth across individuals and households is a combination of personal and social factors. Personal factors are unique to individuals and include talent, effort, and luck. Such factors can be either nurtured or hindered by the family upbringing of the individual. Social factors affect groups of people and include education policies, labor market laws, tax codes, and financial regulations. At any moment in time, social factors can overpower personal factors to determine individual prosperity and increase inequality among people. 2

For example, as gradually more married women started working outside the home between 1960 and 2000, their family incomes increased and the differences in income between households became larger depending on whether they had one or two people earning wages. At the same time, differences in the types of jobs women and men tend to hold also contribute to income inequality between genders. 3

Because wealth is accumulated over time, older people are generally wealthier than younger people. For that reason, if there are many more young people than old people in the general population and the old hold more wealth than the young, overall wealth inequality will be high. 4

Finally, some people argue that the type of monetary policy used to ensure steady access to credit by households and businesses during recent economic contractions may contribute to higher levels of income inequality. However, that claim is hotly disputed. 5

How Is Income Inequality Measured?

There are different ways to measure how unequal income is in a country. The U.S. Census measures income inequality as the ratio of the mean, or average, income for the highest quintile (top 20 percent) of earners divided by the mean income of the lowest quintile (bottom 20 percent) of earners in a particular area. Let's say a small county has 500 people earning an income. To measure how unequal those incomes are, the Census surveys and sorts each person's income from highest to lowest, calculates the average income of the 100 people earning the most and the average income of the 100 people earning the least, and divides the first figure by the second figure. 

Figure 1 Income Inequality by County 

SOURCE: U.S. Census via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?m=QRCJ , accessed June 23, 2021.

Figure 1 shows average county-level income inequality measured between 2016 and 2020. The Census considers the average income over a five-year period to account for the fact that peoples' income changes from year to year. Measured this way, income inequality can be as high as 130 or as low as 5. These measurements mean that the most affluent households in a particular county can earn as much as 130 times or as little as 5 times as much as the least affluent households do.

Another way to measure income inequality in a population is to calculate the Gini index . The World Bank uses that index to measure how much the distribution of income among households deviates from a perfectly equal distribution. The Gini index can take any value between 0 and 100. A value of 0 represents perfect equality: All households earn the same income. A value of 100 indicates perfect inequality: One household earns all the income, and all other households earn nothing.

Figure 2 Gini Index by Nation

SOURCE: World Bank via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?m=QRFh , accessed April 6, 2021.

Figure 2 shows country-level income inequality measured with a Gini index in 2018. The highest value is 54, and the lowest value is 25. It is important to note that two countries can have very similar Gini indexes despite having very different distributions of income. For example, in 2018, the Gini index for the United States was 41.4 and for Bulgaria was 41.3, despite the fact that those two countries' economic and social histories are very different.

In the United States, since the 1970s, the Gini index has increased at a steady rate, indicating greater income inequality across families. 6 Some research suggests that this growing difference is related to the increased value of the stock market. Wealthier households hold more stocks than poorer households. So, when stock market prices rise, the income of wealthier households grows relatively more and overall income inequality increases. 7  

How Is Wealth Inequality Measured?

The BOG combines information from two different surveys to measure how wealth is distributed among households: It takes the value of a household's assets (e.g., the current market price of a home) and liabilities (e.g., the unpaid part of a mortgage for a home) and calculates the difference between the two, which is called net worth . Next, the BOG sorts household wealth from highest to lowest and reports the net worth of four different groups: the wealthiest 1% of the population, the next 9%, the next 40%, and the bottom 50%.

Figure 3 Share of Total Net Worth Held by Population Groups

SOURCE: Board of Governors of the Federal Reserve System via FRED ® , Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/graph/?g=O2Kq , accessed April 6, 2021.

Figure 3 shows the share of total net worth held by each of those four groups. In 2021, the wealthiest 1% of the population (about 3.3 million households) held about one-third of total net worth; the next 9% (almost 30 million households) held a little more than one-third; the next 40% (about 133 million households) and the bottom 50% (about 166 million households) together held the rest—less than one-third of total net worth.

The data from the BOG show increasing wealth concentration since 1989, when the data first became available. 8 It is important to note that, over time, some individual households can move up or down between wealth groups, depending on the changing value of their assets. Also, some research suggests the particular nature of some economic fluctuations impacts some households' net worth more than others. For example, the real estate crash associated with the 2007-09 recession resulted in large losses for the poorest 50% of the population. 9

Does Inequality Matter?

The economic impact of growing income and wealth inequality in the United States is an intensely studied question. Economists are debating how to answer that question by analyzing data and creating mathematical models to study it. Because this is ongoing work, there is no single answer.

Some research shows that, in richer countries, more unequal income makes economic fluctuations more pronounced. 10 That finding means that the changes in overall income and employment known as business cycles become more dramatic. Moreover, statistical evidence suggests increased income inequality undermines economic growth due to lower educational achievements (and human capital) among poorer individuals and households. 11 As discussed earlier, education builds a person's human capital and is rewarded with higher income from employment. Finally, research suggests the increasing income and wealth inequality can undermine the use of monetary policy (as we know it) to maximize employment and ensure price stability. 12  

Inequality in individual economic outcomes arises from a combination of personal traits and social conditions. The distributions of income and wealth in a society can be measured in multiple ways: comparing the highest to the lowest earners, calculating an index describing how unequal income is among all individuals, and assessing people's financial wellbeing according to the value of their wealth holdings. Regardless of how we measure income and wealth inequality, their distributions in the United States are becoming more unequal. This trend is likely to impact economic life as we know it. More research is needed to figure out precisely how that may happen.

1 Obama, Barack. "Inaugural Address." January 21, 2013; https://obamawhitehouse.archives.gov/the-press-office/2013/01/21/inaugural-address-president-barack-obama .

2 For an example of how the use of city maps to assess lending risk after the Great Depression influenced homeownership rates across population groups for decades afterward, see the following article: Mendez-Carbajo, Diego. "Neighborhood Redlining, Racial Segregation, and Homeownership." Federal Reserve Bank of St. Louis Page One Economics , September 2021; https://research.stlouisfed.org/publications/page1-econ/2021/09/01/neighborhood-redlining-racial-segregation-and-homeownership .

3 For more on gender and labor markets, see the following article: Mendez-Carbajo, Diego. "Gender and Labor Markets." Federal Reserve Bank of St. Louis Page One Economics , January 2022; https://research.stlouisfed.org/publications/page1-econ/2022/01/03/gender-and-labor-markets .

4 For more on aging and wealth inequality, see the following article: Vandenbroucke, Guillaume and Zhu, Heting. "Aging and Wealth Inequality." Federal Reserve Bank of St. Louis Economic Synopses , 2017, No. 2; https://research.stlouisfed.org/publications/economic-synopses/2017/02/24/aging-and-wealth-inequality/ .

5 For a contribution to the ongoing debate about the relationship between monetary policy and income inequality, see the following article: Bullard, James. "Income Inequality and Monetary Policy: A Framework with Answers to Three Questions." Presented at the C. Peter McColough Series on International Economics, Council on Foreign Relations, New York, June 26, 2014; http://research.stlouisfed.org/econ/bullard/pdf/Bullard_CFR_26June2014_Final.pdf .

6 The following FRED® graph shows the income Gini ratio of all families, reported by the U.S. Census Bureau since 1947: https://fred.stlouisfed.org/graph/?g=MKYg .

7 For more on income inequality and the stock market, see the following articles: 

Bennett, Julie and Chien, YiLi. "The Large Gap in Stock Market Participation Between Black and White Households." Federal Reserve Bank of St. Louis Economic Synopses , 2022, No. 7; https://research.stlouisfed.org/publications/economic-synopses/2022/03/28/the-large-gap-in-stock-market-participation-between-black-and-white-households/ . 

Owyang, Michael T. and Shell, Hannah G. "Taking Stock: Income Inequality and the Stock Market." Federal Reserve Bank of St. Louis Economic Synopses , 2016, No. 7; https://research.stlouisfed.org/publications/economic-synopses/2016/04/29/taking-stock-income-inequality-and-the-stock-market/ .

8 For more about the change in wealth distribution over time, see the following post: Federal Reserve Bank of St. Louis. "Comparing the Assets of the Rich, Poor, and Middle Class." FRED ® Blog , October 21, 2019; https://fredblog.stlouisfed.org/2019/10/comparing-the-assets-of-the-rich-poor-and-middle-class/ .

9 For more on how recessions impact household net worth, see the following article: Mendez-Carbajo, Diego. "How Recessions Have Affected Household Net Worth, 1990-2017: Uneven Experiences by Wealth Quantile." Federal Reserve Bank of St. Louis Economic Synopses , 2020, No. 38; https://research.stlouisfed.org/publications/economic-synopses/2020/08/07/how-recessions-have-affected-household-net-worth-1990-2017-uneven-experiences-by-wealth-quantile .

10 For more on the relationship between inequality and economic fluctuations, see the following article: Iyigun, Murat F. and Owen, Ann L. "Income Inequality and Macroeconomic Fluctuations." Board of Governors of the Federal Reserve System International Finance Discussion Papers , July 1997; https://www.federalreserve.gov/econres/ifdp/income-inequality-and-macroeconomic-fluctuations.htm .

11 For more on the relationship between income inequality and economic growth, see the following article: Cingano, Federico. "Trends in Income Inequality and its Impact on Economic Growth." Organisation for Economic Co-operation and Development OECD Social, Employment, and Migration Working Papers , 2014, No. 163; https://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-sem-wp163.pdf .

12 For more on the relationship between income inequality and monetary policy, see the following article: Cairo, Isabel and Sim, Jae W. "Income Inequality, Financial Crises, and Monetary Policy." Board of Governors of the Federal Reserve System Finance and Economics Discussion Series , July 2018; https://www.federalreserve.gov/econres/feds/income-inequality-financial-crises-and-monetary-policy.htm .

© 2022, Federal Reserve Bank of St. Louis. The views expressed are those of the author(s) and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.

Asset: A resource with economic value that an individual, corporation, or country owns with the expectation that it will provide future benefits.

Gini index: A statistical measure of income inequality in a population that ranges from 0 (indicating absolute income equality) to 100 (indicating a perfectly inequal income distribution).

Household: A group of people living in the same home, regardless of their relationship to one another.

Income: The payment people receive for providing resources in the marketplace. When people work, they provide human resources (labor) and in exchange they receive income in the form of wages or salaries. People also earn income in the forms of rent, profit, and interest.

Liability: A legal responsibility to pay back money from a loan or other type of debt.

Net worth: The value of a person's assets minus the value of his or her liabilities.

Quintile: Any of five equal groups into which a population can be divided according to the distribution of values of a particular variable.

Wealth: The value of a person's assets accumulated over time.

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6 facts about economic inequality in the u.s..

Rising economic inequality in the United States has become a central issue in the race for the Democratic presidential nomination, and discussions about policy interventions that might help address it are likely to remain at the forefront in the 2020 general election .

As these debates continue, here are some basic facts about how economic inequality has changed over time and how the U.S. compares globally.

For this analysis, we gathered data from the U.S. Census Bureau, Organization for Economic Cooperation and Development and the World Bank . We also used previously published data points from Pew Research Center surveys and analyses of outside data.

Over the past 50 years, the highest-earning 20% of U.S. households have steadily brought in a larger share of the country’s total income. In 2018, households in the top fifth of earners (with incomes of $130,001 or more that year) brought in 52% of all U.S. income, more than the lower four-fifths combined, according to Census Bureau data.

In 1968, by comparison, the top-earning 20% of households brought in 43% of the nation’s income, while those in the lower four income quintiles accounted for 56%.

Among the top 5% of households – those with incomes of at least $248,729 in 2018 – their share of all U.S. income rose from 16% in 1968 to 23% in 2018.

Income inequality in the U.S. is the highest of all the G7 nations , according to data from the Organization for Economic Cooperation and Development . To compare income inequality across countries, the OECD uses the Gini coefficient , a commonly used measure ranging from 0, or perfect equality, to 1, or complete inequality. In 2017, the U.S. had a Gini coefficient of 0.434. In the other G7 nations, the Gini ranged from 0.326 in France to 0.392 in the UK.

Globally, the Gini ranges from lows of about 0.25 in some Eastern European countries to highs of 0.5 to 0.6 in countries in southern Africa, according to World Bank estimates .

The black-white income gap in the U.S. has persisted over time. The difference in median household incomes between white and black Americans has grown from about $23,800 in 1970 to roughly $33,000 in 2018 (as measured in 2018 dollars). Median black household income was 61% of median white household income in 2018, up modestly from 56% in 1970 – but down slightly from 63% in 2007, before the Great Recession , according to Current Population Survey data.

Overall, 61% of Americans say there is too much economic inequality in the country today, but views differ by political party and household income level. Among Republicans and those who lean toward the GOP, 41% say there is too much inequality in the U.S., compared with 78% of Democrats and Democratic leaners, a Pew Research Center survey conducted in September 2019 found.

Across income groups, U.S. adults are about equally likely to say there is too much economic inequality. But upper- (27%) and middle-income Americans (26%) are more likely than those with lower incomes (17%) to say that there is about the right amount of economic inequality.

These views also vary by income within the two party coalitions. Lower-income Republicans are more likely than upper-income ones to say there’s too much inequality in the country today (48% vs. 34%). Among Democrats, the reverse is true: 93% at upper-income levels say there is too much inequality, compared with 65% of lower-income Democrats.

The wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016, according to a recent analysis by the Center. Another way of measuring inequality is to look at household wealth, also known as net worth, or the value of assets owned by a family, such as a home or a savings account, minus outstanding debt, such as a mortgage or student loan.

In 1989, the richest 5% of families had 114 times as much wealth as families in the second quintile (one tier above the lowest), at the median $2.3 million compared with $20,300. By 2016, the top 5% held 248 times as much wealth at the median. (The median wealth of the poorest 20% is either zero or negative in most years we examined.)

The richest families are also the only ones whose wealth increased in the years after the start of the Great Recession. From 2007 to 2016, the median net worth of the top 20% increased 13%, to $1.2 million. For the top 5%, it increased by 4%, to $4.8 million. In contrast, the median net worth of families in lower tiers of wealth decreased by at least 20%. Families in the second-lowest fifth experienced a 39% loss (from $32,100 in 2007 to $19,500 in 2016).

Middle-class incomes have grown at a slower rate than upper-tier incomes over the past five decades, the same analysis found . From 1970 to 2018, the median middle-class income increased from $58,100 to $86,600, a gain of 49%. By comparison, the median income for upper-tier households grew 64% over that time, from $126,100 to $207,400.

The share of American adults who live in middle-income households has decreased from 61% in 1971 to 51% in 2019. During this time, the share of adults in the upper-income tier increased from 14% to 20%, and the share in the lower-income tier increased from 25% to 29%.

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Trust in America: How do Americans view economic inequality?

Americans’ views about billionaires have grown somewhat more negative since 2020, first-generation college graduates lag behind their peers on key economic outcomes, racial and ethnic gaps in the u.s. persist on key demographic indicators, in the pandemic, the share of unpartnered moms at work fell more sharply than among other parents, most popular.

About Pew Research Center Pew Research Center is a nonpartisan fact tank that informs the public about the issues, attitudes and trends shaping the world. It conducts public opinion polling, demographic research, media content analysis and other empirical social science research. Pew Research Center does not take policy positions. It is a subsidiary of The Pew Charitable Trusts .

Inequality in the US: Government Interventions Essay

Introduction, why the government should care about the rising inequality, reversing the trend, works cited.

Different studies have highlighted the increasing inequalities in the US (Freeland 60; Packer 1; Bernasek 1). Such studies tend to show that inequality has always been a part of the US economy. However, the rising gap between the rich and the poor has widened at unprecedented rates in the recent past. Today, many rich people earn the largest share of income than the rest. Consequently, there are social, economic, and political repercussions associated with disparity in incomes. Such impacts have profound effects on society and could explain why governments should care about inequality. Therefore, the issue of inequality in the US is a topic of profound interest to policymakers, economists, society, and other scholars. This essay focuses the growing inequality in the US and possible interventions by the government to avert the trend.

There are major economic, political, and social reasons why the government should care about the widening gap of inequality in the US. The well-being of citizens may directly rely on inequality because of its many dimensions. For instance, inequality presents itself in income gaps, wealth distribution, healthcare provisions, exposure to environmental risks, and gaining access to justice among others. In the case of justice, inequality may undermine the rule of law in the US.

On this note, majorities tend to consider unequal society as highly unfair in resource distribution. The poor masses in such societies experience utility loss while the rich thrive because of their high status. In this case, inequality becomes unfair to the poor masses because they have limited opportunities for mobility.

It is difficult to achieve equal opportunities in a society, which is deeply rooted in inequality. In most studies, economists have focused on poverty and neglected inequality and its related impacts. To this end, studies (Bernasek 1) have indicated that poverty, as a manifestation of inequality in a society, causes poor standards of living and health. In addition, it affects individuals and limits any potential progress of a society by restricting chances of attaining quality education for competition in the labor market. While poverty might be responsible for several factors in enhancing inequality, one may also observe inequality in nontrivial aspects. For instance, poor children may not have economic means for better education relative to children with greater wealth. In turn, poor children with limited opportunities in society may find it difficult to achieve equality.

Inequality affects politics of the US. McClintock argues that the rise in economic inequality undermines the US fundamental beliefs and democracy, which claim freedom, equality, and justice (McClintock 1). Economic power tends to influence political power even in highly developed democratic nations. In the US, economic power has worked well during political contributions. This situation creates far-reaching impacts as scholars begin to look at it as Winner-Take-All Politics perpetuated by organized money (Packer 1).

The result has been powerful political forces with no interest of the public and not interested in fixing public issues. Consequently, the US political system has created a dangerous pathway that would plunge the country into instability as witnessed during the recent debt-ceiling debacle. This resulted from “ideological rigidity bordering on fanaticism, an indifference to facts, an inability to think beyond the short-term and the dissolution of national interest into partisan advantage” (Packer 1). Hence, economic and political repercussions of inequality could create different drawbacks in society.

The growing gap of equality has persisted for the last 40 years. This implies that it could be impossible to use simple political rhetoric to fix the trend. As few people accumulate more wealth, they become extremely powerful and influential, which make it simple for them to influence political decisions. In most cases, such political decisions would allow them to amass wealth to the point that it would be difficult to address causes and effects of inequality (Packer 1).

As countries become highly integrated through markets, communication, and transportation systems, Americans begin to reach out to the world in search for new investment opportunities (Friedman 470). They look for countries with low labor costs and other favorable environments for foreign investors. Consequently, they have been able to outsource some business abroad. Some critics have linked the rise in globalization to the increasing inequality in the US because of outsourced jobs.

Although many politicians and some experts discuss inequality in the US, few of these opinion leaders have ideas on how to reverse the growing trend of inequality. The major challenge is that no one can agree on causes of inequality and its solutions. Moreover, a study by Freeland established that the wealthy group had a loose connection with the masses and were unlikely to be concerned with issues regarding inequality (Freeland 60).

At the same time, others have argued that impacts of inequality may not be completely detrimental (Bernasek 1). Such studies have claimed that inequality acts like an economic incentive, which drives people to productivity for higher wages. Therefore, without inequality individuals would lack incentives to be productive. Supporters of inequality also claim that the rich use their increased wealth for further productions and investments, which facilitate economic growth and job creation.

McClintock argues that the government should raise the minimal wage to reduce the gap between the rich and the poor (McClintock 1). He points out that the underlying causes of inequality include globalization and developments in technologies. These factors are likely to persist into the future. Therefore, only individuals who can utilize the artificial intelligence will prosper.

While many politicians express their concerns about inequality, majorities of them simply do not know how to tackle the problem. Consequently, they turn to short-term solutions like higher taxes for the rich while others deny that inequality does not exist. Meanwhile, some scholars assert that raising the Federal minimum wage will help in curbing the rising inequality (McClintock 1). This would result in high spending power among the masses. Generally, the US economy is consumerism, but the minimum wage for the masses is too low to spur any meaningful spending among consumers. Therefore, a raise in the Federal minimum wage will enhance the spending power of the majority and facilitate economic growth and job creation.

The government may review its economic policies and create higher marginal taxes to fix inequality. However, making investments in critical areas for young people could help in reducing the problem.

Many have recognized loopholes in the tax regime that favors the rich at the expense of the middle class. Such loopholes benefit private interests, equity, and interest deduction on mortgage will only favor the rich who purchase luxurious homes. A policy that promotes fairness without exemptions would be progressive for the US inequality. Deregulation of the entire system could also help. For instance, there are restrictive rules, which protect lucrative jobs, such physicians from mass competition.

Parker observed that the past forms of lobbying were highly effective relative to current ones (Packer 1). Lobbyists achieved results, but only after struggle. Hence, legislative advocacy requires active involvement of lobby groups.

Various studies have documented the rising inequality between the rich and the poor. Today, inequality has started to have its effects on society. It divides society based on incomes, residential neighborhood, and consumption patterns. The rich and other elites are detached from impacts of inequality in society. Consequently, it is difficult for them to understand effects of inequality. The masses consider the society as unfair in wealth distribution. They also believe that not much would come from their efforts when the system offers no means of mobility. Inequality results in the pursuit of elusive dreams because many politicians discuss it but they do not understand its causes or impacts. As a result, they are unable to offer any meaningful solutions. It also undermines American democracy and fair opportunities for all.

Meanwhile, inequality continues to create widespread gaps in society and unbalanced economic systems that reward the rich and leave the rest with nothing to spend.

Effective reforms in the law could alter the US growing trend of inequality. Eliminating a tax regime system that favors the rich could fix some challenges. However, the government must review minimal wages to protect the masses and check the income gap variation. Further, effective review of economic policies coupled with strong legislative advocacy could eliminate the challenge of inequality in the US.

Bernasek, Anna. Income Inequality, and Its Cost . 2006. Web.

Freeland, Chrystia. “The Rich are Different from You and Me.” Atlantic Monthly 308.1 (2011): 60. Print.

Friedman, Thomas. Globalization: The Super-Story. New York: Farrar, Straus & Giroux, 2002. Print.

McClintock, Makai. Income inequality in the United States: An argument for raising the federal minimum wage. 2013. Web.

Packer, George. The Broken Contract: Inequality and American Decline. 2011. Web.

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BILL MOYERS : Welcome. Inequality matters. You will hear people say it doesn’t, but they are usually so high up the ladder they can’t even see those at the bottom. The distance between the first and the least in America is vast and growing.

The Washington Post recently took a look at two counties in Florida and found that people who live in the more affluent St. Johns County live longer than those who live next door in less rich Putnam County. The Post concluded: “The widening gap in life expectancy between these two adjacent Florida counties reflects perhaps the starkest outcome of the nation’s growing economic inequality: Even as the nation’s life expectancy has marched steadily upward…a growing body of research shows that those gains are going mostly to those at the upper end of the income ladder.”

That’s true across America. In California’s Silicon Valley, Apple, Facebook and Google, among others, have reinvented the Gold Rush. But down the road in San Jose it’s not so pretty a picture. Do the math: in an area where one fourth of the population earn an average of about $19,000 dollars a year, rent alone can average more than $20,000 dollars a year, and that difference adds up to homelessness. We talked to Associated Press reporter Martha Mendoza, who brought this story to our attention.

MARTHA MENDOZA : I’ve been a journalist in this area for 25 years, and during that time it has gone from having a pretty robust middleclass to being an area where you see this great divide of wealthy and poor, and nowhere do you see that more than in the Silicon Valley, where 25 years ago this was a place of orchards and farms and ranching and small businesses, and it has completely changed now so that you have incredibly wealthy people and incredibly poor people and a growing gap. Homelessness has increased dramatically. In the shadow of Google, in the shadow of Oracle, in the shadow of Apple Computer, you have people who are hungry.

CINDY CHAVEZ : People had this believe that somehow Silicon Valley was paved with gold—and I would even say my parents, coming from New Mexico, all those years ago when I was very small, I mean they came here looking for opportunity. They wanted to be in a place that it didn’t matter what their ethnicity or culture was, it didn’t matter what their class was, that they really could put their stake in the ground, buy a home and grow a family. I think that’s a dream that a lot of people come to Silicon Valley with, and one of the problems is that it’s not like that for everybody. We have really been a tale of two cities for really a long time.

RUSSELL HANCOCK : Our economic expansion is pretty staggering, people have referred to it as the longest, most sustained, largest, legal wealth creation in the history of the planet. We have very high-income, highest in the nation. We also have very low. We’ve got both. And what’s actually happening right now is a hollowing out in the middle. Now, this is a national phenomenon, but it seems to be particularly acute in Silicon Valley. We’re still generating on the high end—engineers and scientists and coders. But the support positions, manufacturing, you’re not going to see that in Silicon Valley anymore.

MARTHA MENDOZA : They would manufacture silicon chips here in the early days. And I was just the other day looking for anybody making wafers anymore, and there’s not.

THERESA FRIGGE : I used to work with National Semiconductor. I worked in masking. I made that silicon chip. I’m the one who put the programs on that chip, I’m the one who inspected them. I’ve cleaned houses, I have taken care of disabled people. I’m 54 years old, I’ve got nothing.

MARTHA MENDOZA : What happened was, in the Silicon Valley 15 years ago, during the first boom, for every five jobs they were adding, they were building two units of housing. So that jacked up the housing prices to what fights for the most expensive housing in the country. Sometimes it’s first place. Sometimes it’s second place. People who had blue-collar jobs were getting paid 10, 15, 20 bucks an hour, and when their jobs went away they were largely unskilled and could take jobs that paid $8 an hour. That would be the minimum wage in San Jose for the past 15 years. As of last week, they raised it to $10 an hour. Now, on that type of wages, you can’t rent an apartment, you can’t buy food, and you can’t handle the transportation expenses, which can be very high. And so you end up—in some cases you find people living three or four families to an apartment, or people move into homeless shelters or people leave the area.

DANIEL GARCIA : This is my tent. This is where I live. I’ve got my transportation, my bike. I have electricity that I run by car battery. I worked at a restaurant at Google. They have, I don’t know, I guess sixteen or eighteen full-blown restaurants you can go eat at when you work there, for free. I never heard of that in my life. They started doing background checks and they did a background check on me. I’m a convicted felon, so they couldn’t keep me there anymore. Right now, I do yard work for people, stuff like that. I find bikes I fix them up and resell them.

MARTHA MENDOZA : In many communities you see the homeless people, you see them living in the streets, you see them begging downtown, or busking. In the Silicon Valley, this is a lot of freeway living and the homeless people they live along the creeks, or in parks, but where people aren’t going to see them, so it’s more of a hidden problem.

CINDY CHAVEZ : We had a family visit us, mother, father and three children, and they are homeless, and they’re homeless because the father is a gardener, he works three days a week, he makes $75 dollars every day he works. The mother lost her job in manufacturing. It took one paycheck to move them from their apartment onto the street. And that’s true for a lot of families in our community. At some point and I do worry about this, like I think is it all sudden that the country splits in half are we creating literally two Americas?

MARTHA MENDOZA : Silicon Valley has the brainpower and has the risky personality to do some really innovative things when it comes to poverty. And I even think there’s a will to do this, but I think there is a lack of awareness, and hopefully a growing awareness because I do think there’s been brilliance out of that region that has changed the world. So wouldn’t it be something if that area could also be the one that sparks the brilliance that starts to solve this really major problem?

BILL MOYERS : Let’s hope so, because inequality in America is now at the greatest level in modern history and shows no signs of abating. And paradoxically, this week it got worse. The stock market reached new levels, making the rich richer and the press euphoric.

NEWS ANCHOR 1 : And the gavel goes down on an historic day on Wall Street.

NEWS ANCHOR 2 : Roaring stock markets.

NEWS ANCHOR 3 : The S&P just hit another record intraday high.

NEWS ANCHOR 4 : Dow’s above 14.8.

NEWS ANCHOR 5 : The NASDAQ rose about 60 points.

BILL MOYERS : No one stopped to point out that when the market goes up, it can mean companies have fired workers in order to increase investor profits. Sure enough, the latest figures show employment has barely risen and more rank-and-file Americans have gone missing from the job market altogether. The Commerce Department reports that personal income fell 3.6 percent in January – that’s the sharpest one-month dive in twenty years. It sure seems like the Roaring 20s all over again -- people at the top living it up while those down below lose their livelihood.

Which brings us to our nation’s capital -- rich in alabaster symbols of representative government yet shamelessly cynical in writing laws and bending rules to favor the one percent. And that includes the tax code.

So on Monday, when you send in your tax returns, think about this. Corporate profits are at record highs. But have those companies invested that in new jobs? No. Did they at least give their workers a bump in pay? Hardly. Surely they shelled out a little more in taxes to help refurbish the social structure – highways, bridges, schools, libraries, parks – where they do business! Guess again. Corporations are sitting on $1.7 trillion of cash. Look at this report just published by PIRG -- the Public Interest Research Group -- on how average citizens and small businesses have to make up the $90 billion giant companies save by shifting profits to offshore tax havens. Among the 83 publicly traded corporations named: Pfizer, which for the past five years reported no taxable income in the US, even as it made 40 percent of its sales here.

Microsoft, which avoided $4.5 billion in taxes over three years by shifting its income to Puerto Rico. Citigroup, which maintains 20 subsidiaries in tax havens and has over 42 and a half billion dollars sitting off-shore. Taxes collected here at home? Zero.

It’s not only corporations stashing their swag abroad. The Center for Public Integrity in Washington and its International Consortium of Investigative Journalists recently got their hands on two and a half million files from offshore bank accounts and shell companies set up around the world by the wealthy. Among those documents are the names of 4,000 Americans who hid their money in secret tax havens. Here’s how they do it:

FEMALE VOICE : You can easily set up a secret company using one of hundreds of off-shore agents. Let’s look at the British Virgin Islands, home to half a million offshore companies. That’s about 40 percent of the offshore companies on the planet. You can buy a ready-made shell company or create your own secret company from scratch in about three days, for just over $1,000. You may be asked to produce documents to establish your identity and they might check your name in a database, to see if you’re a terrorist. But don’t worry, while the system may catch the big fish, it still lets scores of fraudsters and criminals slip through the net.

BILL MOYERS : So it shouldn’t surprise us to learn that the United States collects less in taxes as a share of its economy than all but two other industrialized countries. Only Chile and Mexico collect less. Chile and Mexico. Right now a powerful group of CEO's, multi-millionaires and billionaires are calling on Congress to fix the debt. And their enablers in both parties are glad to oblige. Okay. But why not fix the debt by raising more taxes from those who can afford to pay? Close the loopholes. Shut down the tax havens. Cancel the Mitt Romney Clause Congress enacted, allowing big winners to pay a tax rate far less than their chauffeurs, nannies, and gardeners.

Instead, as we speak, our political class in Washington is attempting to fix the debt by sequestration – Washington doublespeak for bleeding services for veterans and the elderly, the sick and poor, for kids in Head Start.

Marching in lockstep beneath a banner that now stands for “Guardians of Privilege” -- GOP -- Republicans refuse to raise revenues, while Democrats have a president whose new budget contains gimmicks that could lead to cuts in Social Security. Social Security! The one universal safety net -- and a modest one at that – and yet the main source of purchasing power for millions of aging Americans. This, from a Democrat – the heir of Franklin Delano Roosevelt who pulled us to our feet when the Great Depression had America on its knees.

FRANKLIN DELANO ROOSEVELT : This Social Security measure gives at least some protection to thirty millions of our citizens who will reap direct benefits through unemployment compensation, through old-age pensions and through increased services for the protection of children and the prevention of ill health.

BILL MOYERS : But those were the days when our political system rallied to the defense of everyday Americans. Now a petty, narcissistic, pridefully ignorant politics has come to dominate and paralyze our government, while millions of people keep falling through the gaping hole that has turned us into the United States of Inequality.

Warren Buffett, the savviest capitalist of them all, may have written this era’s epitaph: “If there was a class war, my class won.”

• CLOSED CAPTIONING AVAILABLE

• Why the Rich Live Longer
• Dr. King’s “Two Americas” Truer Now than Ever
• Inequality in Silicon Valley, in Five Charts

Full Episode

• Encore: Living Outside Tribal Lines

Bill Moyers Essay: The United States of Inequality

• Sherman Alexie on Living Outside Cultural Borders

Related Features

• The Disease of American Democracy
• Encore: How Tax Reform Can Save the Middle Class
• Capitalism’s Deeper Problem
• How Tax Reform Can Save the Middle Class
• Et Tu , JetBlue? The Airlines’ War on the 99%
• An Interview With Bill Moyers
• Wealthiest Americans Take Home Biggest Share of Income Ever Recorded
• Bill Moyers Essay: The End Game for Democracy
• How Inequality Was Created
• A Tax Day Plan for Righting the Republic
• The Rich Are Different from You and Me — They Pay Lower Taxes
• Why Republicans Should Take on Inequality
• Income Inequality Goes Viral

From the Web

• US PIRG Report: The Hidden Cost of Offshore Tax Havens
• US PIRG Report: Pick Up the Tab 2013
• Secrecy for Sale: Inside the Global Offshore Money Maze

The unprecedented level of economic inequality in America is undeniable. In an extended essay, Bill shares examples of the striking extremes of wealth and poverty across the country, including a video report on California’s Silicon Valley. There, Facebook, Google, and Apple are minting millionaires, while the area’s homeless — who’ve grown 20 percent in the last two years — are living in tent cities at their virtual doorsteps.

“A petty, narcissistic, pridefully ignorant politics has come to dominate and paralyze our government,” says Bill, “while millions of people keep falling through the gaping hole that has turned us into the United States of Inequality.”

Producer : Julia Conley. Editor : Sikay Tang. “Homeless in High Tech’s Shadow” Producer/Editor : Lauren Feeney. Field Producer/Camera : Cameron Hickey.

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