Ending the “evil” of income inequality is the centerpiece of the radical left’s crusade to achieve “social justice” in our society through government mandates on wages and radical tax increases on the nonpoor and business. (And not on just the “rich!”)
But income inequality isn’t evil, it’s a fundamental element of a market economy where excellence, competence and ambition are rewarded more than mediocrity and sloth. The prospect of greater after-tax income, serves as an incentive. A clear example is the disparity in income among elite professional athletes, rock stars, actors and successful entrepreneurs compared to those of average or lesser ability in those fields.
For the vast majority of Americans, income disparities are mostly related to differing levels of education, skills of marketable value, health, physicality, dedication, ambition and work ethic. In America we have relative poverty in a prosperous country, a far better condition than the abject poverty found in truly impoverished countries. America’s poor have cars, big screen TVs, computers, appliances, $200 basketball shoes and even home ownership. And they’re also on the receiving end of abundant government programs that redistribute the income of others, provide for their needs and substantially mitigate income inequality.
Political demagogues and media liberals trumpet misleading economic statistics to inflame not inform public opinion. Yes, some Americans have been casualties of the global economy and its impact on traditional industries, while others have prospered. But it’s simply untrue that the middle class as a whole has been devastated, the temporary effects of COVID-19 aside.
According to the U.S. Department of Commerce, 59% of all families in 1970 had incomes in the range of $35,000-$100,000 (in inflation-adjusted 2019 dollars). By 2019 that cohort had shrunk to 40%. But it wasn’t because they got poorer. The percentage of families making less than $35,000 actually declined from 25% in 1970 to 17% in 2019. Over the same period, the percentage of families with incomes over $100,000 increased from 16% to 43%. Most in the middle class moved up, not down!
It’s true that millions of legal and illegal Latino immigrants have taken low paying jobs over these years and are reported, statistically, as low income workers. Mathematically, that’s had a downward influence on average national income. But this is misleading, as those same immigrants have greatly improved their own standard of living from what it was in their native countries. Being relatively poor here is a lot better than being abjectly poor or even middle class in Mexico, Guatemala or Venezuela.
Income inequality is also misrepresented in government statistics that omit nonwage compensation like employer-provided health insurance and deferred compensation, such as the very generous defined-benefit pension plans of teachers and other government employees. On top of that, the reported income gap between rich and poor is exaggerated by using their pre-tax income.
This ignores the fact that the top 1% pays about 40% of federal individual income taxes all by themselves, while the share paid by the bottom 50% is only 3%.
That distortion is further compounded by ignoring government cash transfers to low-income recipients and the value of their federal and state government services and subsidies, amounting to trillions of dollars annually. It’s as if the taxes paid by the rich and government benefits received by the poor don’t exist.
Bernie Sanders’ oft-repeated claim that “our economy only works for the top 1%” is a flat-out lie. The top 1% are those with annual income above $540,000. The bottom 99% includes the rest of 330 million Americans who make up to $540,000, where the top 1% starts. The median income of this group is about $70,000 and includes plumbers, electricians, government bureaucrats, college professors, teachers, doctors, lawyers, white and blue collar workers, cops, firefighters, mid-level managers, executives, engineers, sales people, construction workers, politicians, and many other ordinary Americans.
This is considerably better than most of the other 8 billion people on this planet. Our market economy is the wellspring that generates trillions of dollars a year, redistributed to multitudes of Americans on the receiving end of scores of government social-spending programs.
All this is beyond the concern or comprehension of Bernie, AOC, Betsy Warren and their utopian socialist ilk, who are oblivious to the consequences of excessive taxation and regulation that undermine incentives and capital formation. These economically vacuous “social justice warriors” are blind to the destruction wrought by limitless government spending, and redistribution of income and wealth that breed dependency, smother industriousness and destroy a society’s economy.