Even the most casual observer of the 2012 presidential election would know that one topic in particular repeatedly surfaced: the growing wealth and income inequality of the United States. Discussions of reducing the national debt, reforming the tax code and even revamping education often included the realization that the richest members of our society far outstrip our poorest members in terms of income growth, quality of education and healthcare access. As the popular phrase goes, “the rich are getting richer, and the poor are getting poorer.” The degree to which this trend bothers you will depend, in part, on your political leanings; Democrats tend to decry it more than Republicans. We should be wary, though, of the problem-solving attitude that is quick to propose solutions when presented with a complex issue. Such an approach will likely cause more harm than good. In particular, we must avoid the temptation to solve economic inequality by capping or limiting growth at the upper echelons. Instead, we should work to boost the lower and middle classes.
First, some figures and ideas to set the scene. Between 1979 and 2007, the top 1 percent of earners in the U.S. experienced a 275 percent growth in income, compared to just 40 percent growth for the 60 percent in the middle. The top 5 percent in the U.S. own more than 60 percent of the nation’s wealth, while the bottom 40 percent own less than 0.2 percent of the wealth.
The picture is clear: wealth and income are overwhelmingly concentrated in a small minority of privileged Americans, and these citizens are only getting richer relative to the rest of the country.
Our Gini coefficient, a common measure of how income is distributed across a society — zero being perfect income equality, one representing a situation in which one person earns all the income — was 0.489 in 2009, although this figure varies significantly between states. According to the CIA World Factbook, our Gini coefficient puts us at 100 out of 140 nations in terms of income equality.
Why should we care about America’s income inequality? I propose a number of reasons. The first is that income inequality divides the country along socioeconomic lines. We begin to rank and classify ourselves on the basis of our wealth, which necessarily separates the country into harmful classifications such as the “producers” and the “takers.” Second, class mobility has drastically declined, threatening the notion that in the U.S. success depends on hard work and natural ability; increasingly, it seems, success depends upon where and to whom you are born, which is eerily reminiscent of bygone eras that we now ridicule, like the Gilded Age of the 1890s. Third, such wide disparities engender bitter divisions in American society, pitting citizens against each other on the basis of wealth. Incompatible interests arise, and politicians start aligning along class lines. These consequences are just a sampling of the harmful effects of extreme wealth and income inequality.
So what is to be done? I should say at the outset that a fair and progressive tax code is a reasonable scheme designed to limit the extent to which the rich can run away with their wealth. We must get past the idea that the rich deserve all their money. Many wealthy citizens benefit disproportionately from being born into wealthy families that can afford to give them better opportunities, many of them simply get rich by knowing the right people and all of them rely on the institutions in place that allow commerce to flow freely. This is why I support a progressive tax system. The wealthiest owe more to a system that has enabled them more than it has enabled others.
The American tax code is, however, progressive in name only. Indeed, our Gini coefficient is higher after taxes than before taxes, indicating income is more equitably distributed before we start taxing than after. Various tax loopholes, some of which came to light during the election, allow the wealthiest Americans to pay very low rates. A revamping of the tax code would bring in more revenue while not raising marginal rates, ensuring that we have a progressive tax system in practice as well as in theory.
But we should not unduly focus on limiting growth in the upper income brackets. Proponents of large-scale income redistribution as the answer to our growing inequality run into a problem: if the rich don’t deserve their money, who does? I certainly don’t deserve Bill Gates’ billions more than he does. We cannot attack the problem of income inequality through schemes designed to funnel money from the rich to the middle or lower classes. Whether or not the rich earned every penny of their wealth is not the issue; the real issue is that no one else earned the wealth either. In essence, it may be the case that wealth doesn’t rightfully belong solely in the hands of the rich, but it is also the case that it doesn’t rightfully belong to anyone else, for all the same reasons. Moreover, economic logic seems to imply that limiting growth is generally a bad idea; people getting richer is, on the whole, good for the progress of society. Wealth drives investment, which gives rise to the myriad of companies that serve Americans of all incomes every day. We shouldn’t send the message that we dislike to see growth in income.
The solution, then, is to focus on ways to enable the lower and middle classes to get the jobs that right now are only going to the rich, growing the bottom brackets faster to catch up with the top bracket — which is, admittedly, easier said than done. As education levels equalize across society, incomes will tend to equalize, and the self-perpetuating aristocracy currently forming will be forced to contend with the reality that the privileges of opportunity they had currently been facing are now available to everyone. Ensuring true equality of opportunity is difficult, complex and not wholly understood, and it is beyond the scope of this article to propose detailed solutions on how to solve this complex problems. What’s important to remember, however, is that we should not mistake equality of opportunity for equality of result, and our approach to tackling inequality should recognize this.
Russell Bogue is an Opinion columnist for The Cavalier Daily. His column runs Thursdays.
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