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The effects of the wealth gap in U.S.

The effects of the wealth gap in U.S.

Posted by Liliana Castaño on August 05, 2014

What's so bad about the rich getting richer?

Plenty, according to ratings agency Standard & Poor's. While the issue has been debated for decades, the actual income gap in the U.S. has been worsening and now is approaching an "extreme" threshold that threatens to hamper long-term economic growth, the agency said in a report on Monday.

Already, the huge gap between the haves and have-nots is crimping the U.S. economy, with the agency cutting its 10-year U.S. growth forecast to 2.5 percent, down from its forecast of 2.8 percent five years ago. The wealth gap undermines economic growth by dampening social mobility and creating a less-educated workforce unable to compete in the global economy.

"Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring," the report notes. "The current level of income inequality in the U.S. is dampening GDP growth, at a time when the world's biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population."

Figuring out a way to narrow the income gap would help the economy, although policy makers need to "avoid policies and practices that are either too heavy handed or foster an unchecked widening of the wealth gap," the agency writes.

Helping Americans gain more education, such as college degrees, could help narrow the gap and expand the economy, given that wages of college grads are double that of high school grads, S&P notes. While raising the minimum wage would lift 900,000 above the poverty line, it also carries a tradeoff, such as the potential for some job losses, the report added.

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