What’s Causing Income Inequality In America? Government Policies That Help The Rich

When politicians consistently favor employers over workers, things get unequal very fast.

What’s Causing Income Inequality In America? Government Policies That Help The Rich
[Photo: Augusto Navarro]

Politics, not money, have caused the rise in U.S. income inequality since the end of the 1970s. A new study from Ohio State University found that, from the ’80s onwards, presidential administrations have favored employers over workers, and this has driven income equality.


Authors David Jacobs and Jonathan Dirlam considered many factors for the change, including the decline of manufacturing, or the rise of minority populations (both of which have had a large impact on income inequality), but by studying tax statistics, they determined that “national-level neoliberal political determinants best explain the extraordinary increase in U.S. income inequality.”

“A lot of research has focused on the role of markets in rising inequality, but they are missing a major cause,” Jacobs told OSU News. “You can’t explain income inequality without looking at political factors.”

The study used IRS data on income covering 33 years and 49 states. Jacobs chose IRS data because it is “extremely sensitive to changes in the economic well-being of the top 1% in the United States.” It is a very accurate way to track the total income share of the top 1% of earners, and if you expand your research to cover the tax returns of lower earners, you can build a picture of the overall shifts in income.

After controlling for all kinds of factors such as the stock market, poverty levels, and the number of people in finance-related careers, Jacobs discovered that politics was the best historical fit as a cause for income inequality.

Ever since 1929, income inequality in the U.S. had been in decline, right up until the last quarter of the century. This reversal began when Ronald Reagan entered the White House, and began to deregulate financial markets, and reduce federal oversight. He also, says Jacobs, chose Labor Relations Board members who favored employers over workers. Thus began the political alienation of the employee at the expense of the corporation. Executive earnings jumped, and companies applied pressure that kept their employees’ incomes low, all while protections for the poorest evaporated.

Meanwhile, more people than ever were getting higher education, which increased their income, further contributing to the income gap.


This theory matches up with another recent study which argues that the world’s governments already have it within their means to end poverty, worldwide. By taxing the rich and the not-so-rich, money could be raised to lift the rest of the world out of poverty. That study also recommends ending subsidies on fossil fuels, and surplus military spending, which are both ways that politics favors corporations over workers.

The evidence is mounting, then, that we have more than enough money to go around. We just have to convince our governments to stop taking it from us and handing it to the 1%.

About the author

Previously found writing at, Cult of Mac and Straight No filter.