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How to Solve Income Inequality

John Divine

Consider this shocking statistic on income inequality: The eight richest men on earth control as much wealth as half of the global population, or the poorest 3.6 billion people.

While those are global statistics, the problem is mind-numbing in the U.S., too. The top 1 percent of American households earned an average of $1.26 million in 2014; the bottom 90 percent got an average of $33,068. And since 1965, income inequality has worsened: The ratio of CEO pay to worker wages skyrocketed from 20-to-1 to 303-to-1 in 2014.

This increasingly gratuitous income inequality gap is contributing to global poverty, health crises, crime and the slow death of class mobility, the backbone of the American dream.

So, how can society change to narrow this wealth gap? There's no single answer, and meaningful progress requires a multifaceted approach. Below are seven suggestions on how to solve income inequality, though no single suggestion fixes inequality on its own.

[Read: Why Your CEO Makes 300 Times Your Salary -- and How That Impacts You.]

An affordable, accessible, quality education. A well-educated country is a capable, skilled, and well-off country; education is arguably the single most critical tool poorer segments of the population can use to ascend to the middle class and stay there.

"Sixty-five percent of jobs by 2025 will require some sort of post-secondary education. So we need to invest more in accessing post-secondary education and encouraging young people in particular," says Monique Rizer, executive director of Opportunity Nation, a bipartisan organization working to close opportunity gaps in America.

"For low-income children, if they have a college savings account in their name they're at least three times more likely to attend college -- and four times more likely to graduate -- than their peers," Rizer says.

The decades-long rise in the cost of American colleges is a serious obstacle to fighting income inequality and disparities in economic opportunity, so addressing that issue head on is a tough, but necessary, challenge.

Combat discrimination and invest in women. Not only is discrimination in all its forms not right, it's been a key factor perpetuating the expanding wealth gap in America and across the world. And it's taken its toll.

"If you look at the family compositions, it's those female head of households with the highest percentage in poverty," Rizer says. "So investing in women is a really important way to increase economic mobility and strengthen families."

Steven Werlin, communications and learning officer at the poverty alleviation agency Fonkoze, is working to fight extreme poverty in Haiti. "A lot of the worst poverty comes from women who do not have independent means to earn an income," he says. Often these women have multiple children and partners who've abandoned them.

For many poor, "the only way they know to take care of themselves and their children is to find some guy," Werlin says. "So if we can help ensure that the women themselves have a reliable income, we can help with that."

If you need one compelling reason to invest in both women and education, consider this: Women with more education tend to have fewer, healthier children, which is certainly desirable for those looking to escape poverty.

Expand access to capital, encourage entrepreneurship. Fonkoze fights inequality by extending microcredit to poor Haitians to help them start their own local, sustainable business and become self-sufficient. The poorest 10 percent of Haitians qualify for grants under a program called the Graduation Approach. Fonkoze helped more than 5,000 people through the program.

"After 18 months, something like 95 or 96 percent are able to manage their lives without grants," Werlin says.

Microloans are a creative and effective way to fight inequality by helping aspiring entrepreneurs get up and running. On kiva.org, you can crowdfund a small loan to a real entrepreneur halfway around the globe.

So what makes Kiva special in the efforts to reduce income inequality?

"We expand access to credit on very, very generous terms for small business owners," says Jonny Price, senior director of Kiva U.S.

He's not kidding about those terms -- the interest rate on Kiva loans is zero percent. Since it's a crowdfunding website, a commitment of as little as $25 can help entrepreneurs reach their funding goals, and maybe just fight their way out of poverty.

"Entrepreneuship can create wealth; the median wealth of business owners is about two-and-a-half times greater than non-business owners," Price says.

Reduce the social capital gap. Social capital is the aggregate value of someone's social connections. Those with large social networks full of rich contacts are more likely to tap into them themselves and get a job, reach a new customer or start a business.

"Imagine you have a $10,000 loan crowdfunded by 400 Kiva lenders. That's 400 potential customers of that business; that's 400 potential Facebook (ticker: FB) Likes for that business's Facebook page, which is brand impressions and marketing; it's 400 potential LinkedIn ( LNKD) connections, who can potentially make a connection to get their product on the shelf at Whole Foods ( WFM)," Price says.

Thankfully, you don't need a business plan to develop connections that can eventually prove to be an economic boon. "If people are involved in groups and sports and community organizations, they're developing social capital that we know is important to flourish," Rizer says.

[Read: How to Find a Great 529 Plan to Pay for College.]

Juvenile/criminal justice reform. Getting arrested can put a permanent blot on your record, fairly or unfairly. All too often this happens to young people, who then become passed over by society and stuck in a vicious cycle of poverty or crime.

"There's 57,000 young people in juvenile detention and correctional facilities every day, and hundreds of thousands more connected to the criminal justice system, so ensuring they don't become disconnected youth is just important for communities and the larger economy," Rizer says. "Many of them are incarcerated for nonviolent crimes. So we need to find a way to keep them out of the system and then seamlessly move them back into society to support themselves and their families."

Progressive taxes, estate taxes. There's no clear-cut formula showing how to solve income inequality. But if there were one, it would certainly involve tax reform.

A truly progressive tax rate -- one where the wealthiest pay the highest rates and the poorest the lowest -- can only help to keep income inequality in check. The U.S. has a progressive tax system in name, but in practice there are gaping loopholes. Closing up the loopholes, and taxing capital gains and dividend income as regular income, is one of the more powerful tools society can use to fight income inequality.

A hefty estate tax would also be desirable in any country wishing to narrow its wealth gap, meaning that wealthy people would pass on less of their riches to their children, reducing the ability for families to become wealthy and remain so for generations.

Other partial solutions. There are many paths to fixing what may be the most crippling social issue of our time, which is both uplifting and discouraging. On one hand, there are many different ways to make progress; on the other hand, there's no simple prescription, and it will require concerted efforts by many, many people.

Some additional ways to start bridging the wealth gap include:

-- Increasing access to high-speed internet

-- Decreasing crony capitalism: make it hard or impossible to buy politicians.

-- Improving the quality and access to affordable health care

-- Crafting financial regulations that prevent too-big-to-fail banks without restricting responsible lending.

-- Charitable giving

-- Increasing the minimum wage

[Read: 5 Reasons Donald Trump's Presidency Will Include a Recession.]

By no means are these recommendations an exhaustive list detailing exactly how to solve income inequality. But it's a start, and even the average person can do quite a bit to help out.



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