The American Dream is the belief that anyone, regardless of where they were born, or what class they were born into, can attain their own version of success in society. It is the centre of American nationality. It is one of the rare bipartisan issues, and suggests that equality of opportunity is available to any American, allowing the highest aspirations and goals to be achieved. However, increasing income inequality in America is endangering the ambitions of future generations. With parents’ incomes largely determining a child’s access to education and healthcare, many households are trapped in a cycle of poverty. And this number is increasing: the Gini coefficient below shows a diagrammatic representation of America’s income inequality. Since 1970, the coefficient has moved up 9 points, showing the prominence of the problem. As a result, the possibility of the American Dream is increasingly in jeopardy, and national disillusionment is on the rise.

Widening inequality in America can be attributed to several factors. First, many low skilled American workers have become structurally unemployed, losing their jobs to automation and competition from cheaper labour abroad. Second, poorer families are unable to afford higher education for their children, and this is exacerbated by increasing fees; over the last 20 years, average college fees have increased by 69%. Workers without college degrees earn around 20% less than those who do. Third, the tax system benefits the wealthy. The richest 1% pay an effective federal income tax rate of 24.7%. That is a little more than the 19.3% rate paid by someone making an average of $75,000. And 1 out of 5 millionaires pays a lower rate than someone making $50,000 to $100,000, due to poor enforcement. Moreover, the American Social Security tax is regressive, placing a greater burden on the poor. A combination of these issues has seen the rich become much richer, whilst the poor have barely seen any rise in their income.

Despite the idealism of the American Dream (that equal opportunity is available to every American), the US is the country with the most unequal opportunities. As a result, income inequality is a threat to social mobility. Poorer families cannot invest as much into their children’s education and these children find it difficult to compete with those who have had more invested into their skills, often taking lower skilled jobs. Moreover, it is harder to obtain more useful skills to switch to a better job. This undermines the idea of the American Dream for poor citizens, since they cannot move up the social ladder. This is particularly bad because it leads to workers becoming discouraged and less motivated to invest in their own education and skills. Human capital is underutilised, resulting in lower levels of economic growth, and the poor remain poor if they don’t gain skills.

The American Dream can also be political though. Income inequality makes people feel that the system is unjust, and they may blame the state for poor governance. People may take decisions such as strikes, demanding compensation. This effect is worse when the government has done something that directly excludes people from the possibility of the American Dream. For example, Trump’s government implemented policies such as the travel ban banning refugees or travellers from seven predominantly Muslim countries. These policies were widely criticised for being prejudiced. His use of inflammatory rhetoric also emboldened white supremacist groups and other extremists, leading to a rise in hate crimes. Discrimination against minorities led to disenfranchisement from the American Dream and social unrest. Moreover, it led to minorities becoming discouraged and left out of economic progress.

Many solutions have been proposed to address income inequality in America. The most popular approach is to raise taxes on the wealthy, such as corporate or income tax, and use revenue to invest in programs that benefit the lower and middle classes. This could include initiatives such as education, job training programs, free healthcare and subsidising housing. These programs would increase opportunities for the poorest, giving them a greater ability to climb the social ladder. As a result, they would be more optimistic about their financial outlook, increasing their propensity to take risks such as pursuing education or starting a business, and therefore their willingness to engage with the American Dream increases. 

However, the primary concern with wealth redistribution is that it might disincentivise investment, ultimately harming the economy. Firms could seek more lucrative destinations to invest in, for a higher return. Output could decrease, leading to lower tax revenues, and therefore government expenditure. Nonetheless, countries such as Australia, Switzerland and Germany have managed to maintain a far more equitable society while keeping investment high in their economy, growing annually at 4% on average. Therefore, the US could follow the approach of these governments, and raising taxes on the wealthy may not be particularly detrimental to the economy, whilst making the American Dream more accessible. 

Income inequality threatens the core ethos of the American society. Differences in access to opportunities from a young age makes the American Dream seem impossible for a growing number of people, and this has impacted their mentality significantly. Some people have become discouraged, and others riotous, leading to overall economic downturn. Therefore, it is vital for America to address the inequality problem. The concerns towards wealth distribution are valid in theory, but many real world examples show that they can be avoided such as Australia, Switzerland and Germany. It is critical that we work towards a more equitable society, to make sure the hope of the American Dream is not only a dream but a possible reality. By prioritising the needs of the many over the wants of the few, America can create a more prosperous and just society for all where the American dream is easier to attain.