As we listen to President Obama, Occupy Wall Street, and much of the mainstream media working themselves into a lather over inequality in America, one thinks of “Harrison Bergeron,” the 1961 short story by Kurt Vonnegut that posited a society based on perfect equality, “not only equal before God and the law . . . equal every which way.” The government employed a “Handicapper General” to ensure that no one was smarter, more athletic, or more productive than anyone else. Beautiful people were forced to wear masks, athletic people had to carry weights, and intelligent people wore radios in their ears to interrupt their thoughts with loud noises.
Yet for all the sound and fury — and beating drums in Zuccotti Park — almost everything that people presume about inequality in America is wrong.
For example, nearly all reporting on income inequality in America has suggested that the incomes of the rich have been rising, while incomes for the rest of us have been stagnant or even declining. But that may represent a significant misreading of the data.
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Most studies of inequality, including the recent widely reported study by the Congressional Budget Office, rely on IRS-reported taxable income. But, as studies by the Cato Institute’s Alan Reynolds and others show, reports of skyrocketing incomes among the top 1 percent of earners may be distorted by changes in the tax code that have resulted in more wealth being reported as taxable income. These tax changes caused businesses to switch from filing under the corporate tax system to filing as individuals, and executives to switch from accepting stock options taxed as capital gains to nonqualified stock options taxed as salaries. Simultaneously, the reductions in income-tax rates in 1986 caused much previously unreported income to show up on tax returns.
At the same time, incomes among lower- and middle-income workers have been shifting from cash wages to non-cash benefits such as health insurance and pensions. These non-cash benefits frequently do not show up as taxable income even though they have value to the worker. In fact, a recent study by Mark Warshawsky of the Social Security Advisory Board suggests that nearly all of the recent increase in earnings inequality “can be explained by the rapid increase in the cost of health insurance employee benefits, and that therefore [there] has not been as significant increase, if any, in inequality of compensation.”
Similarly, many studies looking at low-income Americans fail to account for non-cash social-welfare benefits such as food stamps, housing subsidies, and Medicaid. Fully accounting for all of these factors suggests that the gap between rich and poor may not be nearly as large as thought, and that inequality may not be growing at all.
Studies also show that what inequality does exist is not the result of the Bush tax cuts or a failure to spend more on social-welfare programs, but on the transformation of the American economy from a focus on manufacturing to information and technology. This change puts a greater premium on education. As a result, the incomes of high-school dropouts or those with just high-school degrees have stagnated while incomes for many college graduates and those with graduate-level educations have increased significantly. The unfortunate fact is that despite massive increases in education spending, large segments of our society remain unprepared for a 21st-century economy. That is a tragedy, but it has nothing to do with tax cuts for the rich.
In the end, however, one has to ask a more basic question. Why do we care about inequality at all?
Poverty, of course, is a bad thing. But is inequality? After all, if we doubled everyone’s income tomorrow, we would eliminate an enormous amount of economic hardship. Yet, inequality would actually increase. As Margaret Thatcher said about those who obsess over inequality, “So long as the [income] gap is smaller, they would rather have the poor poorer.”
In what way does someone else’s success harm me? Such a viewpoint stems from the misguided notion that the economy is a pie of fixed size. If one person gets a bigger portion of the pie, others of necessity get smaller pieces, and the role of government is to divide up the slices of that pie. In reality, though, the size of the pie is infinite. But to make it grow, we need people who are ambitious, skilled risk-takers. We need people to be ever striving for more. That means that they must be rewarded for their efforts, their skills, their ambitions, and their risks. Such rewards inevitably lead to greater inequality. But as Nobel Prize–winning economist Gary Becker pointed out, “It would be hard to motivate most people if everyone had the same earnings, status, prestige, and other rewards.”
Another Nobel Prize winner, F. A. Hayek, concluded, “The rapid economic advance that we have come to expect seems to be in large measure a result of this inequality and to be impossible without it. Progress at such a fast rate cannot take place on a uniform front but must take place in an echelon fashion, with some far in front of the rest.”
We should all seek a prosperous, growing economy, with less poverty, and where everyone can rise as far as their talent and drive will take them. Equality? Who needs it?
All other individual elements (educational opportunity, employment availability, health status, transportation access , etc.) being equal, conduct the following experiment: Appropriate (X) number of dollars to Control Group A and an equal number of dollars to Control Group B. Follow-up on the cumulative wealth status of each control group within exactly the same specified time (the plan to follow-up and the date deadline being unknown to either control group). Anybody care to speculate if the wealth status remains exactly the same even though both groups exactly the same number of dollars? What is NEVER acknowledged in the media or by politicians is reality: the choices made by the individuals of which each Control Group is comprised. Human nature is not now, nor can it be, legislated anymore than morality can be legislated. It is a "state of being." THE WHOLE COMMUNIST CONCEPT IS BOGUS AND COUNTER-INTUITIVE! The Bible has a name for usurping forcing from one to hand to the other--IT'S CALLED THEFT! Oxymoron!
There's an obvious problem with blaming the evidence on its basis in IRS-reported taxable income.
While it's doubtless true that middle earners get perks these days that don't show up in this category, it's also true that the wealthy are extremely adept at keeping their wealth away from IRS attention. For this reason it's quite possible that the US has become even more unequal than the graph at the top suggests.
Secondly, while it's true that the poor are more able to purchase material goods these days, what about intangible goods? Are we saying it's easier for the poor to buy their way into positions of power and influence, into the best networks, the best universities? Or are we creating an aristocracy, and tossing the poor 38" plasma TVs as compensation?
"...it's also true that the wealthy are extremely adept at keeping their wealth away from IRS attention."
I'd be interested to see evidence of this.
A roofer may charge you a little less if you pay cash, and the IRS is unlikely to become aware of it. But a billionaire operates in more of a fishbowl just because the size of his/her transactions is large.
On the other hand, if these billionaires are able to structure their transactions in such a way as to lawfully minimize their taxes, that's not the same as "keeping their wealth away from IRS attention."
"...On the other hand, if these billionaires are able to structure their transactions in such a way as to lawfully minimize their taxes, that's not the same as "keeping their wealth away from IRS attention."
I'm not arguing that taxation is virtuous - far from it. I'm saying that lawfully reducing one's tax exposure is likely to mean that IRS figures underestimate your true wealth. The author does appears not to have considered this.
"... that lawfully reducing one's tax exposure is likely to mean that IRS figures underestimate your true wealth."
Not likely. You have to report all of your income even if the decutions enable you to pay nothing in taxes; they will know exactly what you made, unless you lied, a criminal act. Tax avoidance is legal. Tax evasion is a crime.
Any other deductions must be documented and from these any competant accountant can estimate your wealth quite reliably.
Tax records are among the most reliable of any the government keeps with respect to the their information. This should be no surprise. Governments may be monumentally inept at almost everything they do but taking the people's money is something that governments generally do quite well.
So if I make 300k(Yeah Right) as a Roofer I pay the top Marginal Rate, if I make 300 Million as a Warren Buffet Investor , I pay the far lower Capital Gains rate. This is FAIR to you?
Yes. The money invested is money the investor had left after income taxes when it was earned income. That money is invested in corporations which employ the bulk of US employees. Make those investments less attractive and watch those jobs go overseas too. On the other hand, if you invest your extra income in profitable investments, you too could pay the lower capital gains rates when you sold those investments at a profit.
So you would charge the smuck who actually works with his hands, a job which cannot be "gone overseas," more, and charge the lucky investor less because he can take his investments overseas.
You think people who actually have enough money left over after taking care of the basics should be rewarded with lower rates for having attained their status as investors.
I'm surprised globalization isn't mentioned. Expanding a market from U.S. to worldwide of course, increases potential profit/wealth of business owners/corporations. Here, the "1%" is earning greater wealth from an international market, the pie has expanded and their piece is now larger but not necessarily at the expense of the "99%," especially if the products are manufactured in the U.S.
However, on the flip side, shipping our manufacturing overseas eliminated what was once skilled blue collar jobs that was the foundation of much of middle class in America. So, that piece of pie has shrunk, and it has done so with the blessings of both political parties in bed with manufacturing corporations and their lobbyists.
I'm surprised globalization isn't mentioned. Expanding a market from U.S. to worldwide of course, increases potential profit/wealth of business owners/corporations. Here, the "1%" is earning greater wealth from an international market, the pie has expanded and their piece is now larger but not necessarily at the expense of the "99%," especially if the products are manufactured in the U.S.
However, on the flip side, shipping our manufacturing overseas eliminated what was once skilled blue collar jobs that was the foundation of much of middle class in America. So, that piece of pie has shrunk, and it has done so with the blessings of both political parties in bed with manufacturing corporations and their lobbyists.
The truth is that no one really cares about equality. By stoking envy through class warfare, statists such as Obama leverage the existence of inequality to advance their big-government, centrally planned agenda. Instead of freedom, merit and free markets distinguishing winners and allocating resources, the O crowd wants to be in charge of the entire process. If the Left really cared about individuals, their compassion would be measured in the number of persons not dependent on the government for their existence.
The issue is overstated, but also misunderstood. Income is only one part of the puzzle of wealth. The aggregation of wealth in the United States is enormous, and the people in the US are in an entirely different situation from people in less capitalist societies. Read Tom Sowell's BASIC ECONOMICS for a clear and easy-to-understand explanation of how wealth and income are confounded. The more interference by government to control prices, the less access individuals have to participating in the process of acquiring wealth. This includes artificial wage standards.
Tanner, you're completely missing the point about why inequality is detrimental. Economic inequality at the levels we are experiencing not only perpetuates existing disparities, but aggravates them. The poor have dramatically fewer opportunities; their children have ineffective education, poor nutrition, little if any medical care, etc.
Few people suggest solutions anywhere near Vonnegut's story, but we do think society should focus on making sure all citizens have equality of opportunity at an early age. What rationale justifies denying a citizen equal educational opportunities, K-12? Or adequate nutrition and medical care?
If we adopted this philosophy, we'd see tremendous benefits as every citizen was able to reach his/her potential. We need to shift toward the ideas of the equalize-now movement and provide this type of equality to our children.
Poor people have little to no access to health care?
Are Medicaid as well as numerous state low-income programs a figment of my imagination?
My low-income uncle used up close to half a million dollars in cancer treatment before he died and didn't pay one thin dime. If I had the same diagnosis I'd have to sell everything I own to pay for the same treatment (and would still come up short).
A friend of mine on Medicaid has her dermatologist visits/acne medication/behavioral meds provided free of charge, as well as her son's orthodontic treatments and corrective eye surgery. I am solidly middle class with what passes for good health insurance these days, but I have to pay several thousand dollars in premiums as well as meet a thousand-dollar deductible before my plan pays for anything other than worthless yearly exams in which a twenty year old medical assistant covered in tattoos and popping gum in my face takes my vitals and the doctor comes in for five minutes to make an appearance and doesn't deliver any actual care or treatment without charging me for a second appointment.
As a person whose disposable/investible income gets smaller and smaller with every year that passes thanks to continual increases in the cost of health care/food/utilities/gas/property taxes, and yet isn't all that far removed from the income levels of people who get handouts in the form of cash benefits, free or reduced school lunches, food stamps, Medicaid, Section 8, et cetera, your comment infuriates me.
Yes, of course, being poor and on Medicaid is a dream come true. If only I had a nickel for every time I heard someone say, "Who needs Blue Cross when you can have Medicaid?"
The gentleman to whom I responded claimed that the poor have little to no health care. I pointed out that that is entirely false. Neither of us said anything comparing private insurance to Medicaid.
Reading comprehension: not just for grade schoolers.
Except you did make explicit comparisons between Medicaid and private insurance: regarding amount paid and services received:
The treatment your low-income Uncle got, free of charge, versus your ('...have to sell everything I own...') insurance. And the treatment a friend on Medicaid gets versus your own.
Fair enough. I did compare out of pocket cost to patient. I did not compare quality of care, which is what I assume that Clareita person was referring to.
While you did not directly compare the quality of care one receives on Medicaid to what you would have on private insurance, it was implied that you are less than satisfied with the medical care you receive - "worthless yearly exams" contrasted with the variety of services your friend's son receives. My point is that I don't know anyone, myself included, who would rather be on Medicaid instead of their private insurance.
