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OECD warns U.S. on income inequality

June 27, 2012: 4:50 PM ET

The United States should aim to fix its income inequality problem by improving education for disadvantaged students and raising taxes on the wealthy, according to a new report from a consortium of developed countries.

The report pointed out that the U.S. has among the highest income inequality and relative poverty among the 34 countries that make up the Organization for Economic Cooperation and Development.

"The US education system is less effective than those of other countries in helping children realize their potential," the report said. "The United States is one of only three OECD countries that on average spend less on students from disadvantaged backgrounds than on other students."

Income inequality can be bad for health, education, innovation and economic well being, the report noted, citing experts' studies.

Also, the U.S. tax and benefits system is much less effective in reducing relative poverty than that of other OECD countries, the report found.

The federal government should refocus its safety net programs to better address the needs of the very poor and shift away from tilting them toward certain demographic groups, such as the elderly and disabled.  It should also simplify its lifeline initiatives, which would reduce costs and improve take-up.

Income inequality was one of four areas of concern highlighted in the OECD's biennial outlook of the United States.

The others include:

  • Continuing economic policies that support the recovery and avoiding the "fiscal cliff" in 2013 due to the scheduled expiration of tax cuts and implementation of automatic spending cuts.
  • Addressing long-term unemployment by promoting job creation and providing the education and training needed to raise the skills and wages of the workforce.
  • Foster more innovation by continuing to invest federal funds into research and development, as well as placing more emphasis on education in science, technology, engineering and math, the so-called STEM fields. Some 22 out of 30 OECD countries surveyed have more graduates in science and engineering among 25- to 34-year-old workers than the United States.

The OECD projects that the U.S. economy will grow by 2.4% in 2012 and by 2.6% in 2013.

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About This Author
Tami Luhby
Tami Luhby
Senior writer, CNNMoney

Tami Luhby is a senior writer at CNNMoney and covers income inequality, state fiscal problems, unemployment, housing policy and other economic issues. Luhby previously covered personal finance for Newsday and banking for Crain's New York Business.

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