Wednesday, April 18, 2007

Income Inequality

This is an interesting piece by Robert Samuelson on income inequality. The difference between the rich 1 percent today and the richest 1 percent nearly a century ago is that today's rich have earned it.
That said, the inequality debate is misleading. Up to a point, inequality is inevitable and desirable. The prospect of doing well encourages people to work hard, develop new skills and take risks. It anchors America's entrepreneurial spirit and economic success. Most of today's rich have earned -- not inherited -- their status. Among the top 1 percent, report Saez and Piketty, more than four-fifths of their income comes from salaries and self-employment. In 1916, the top 1 percent relied far more heavily on income from dividends, interest and rent.

The question of whether the rich pay their "fair'' share of taxes has triggered one of those debates in which both sides are half right. It's true, as liberals say, that the Bush administration pampered the rich. Tax cuts on capital gains (stock profits) and dividends weren't needed as incentives. Ending the estate tax would be similarly unwise. But it's also true, as conservatives say, that liberals popularize the fantasy that taxing the rich more will solve most budget problems.

It won't. The richest 10 percent already pay half of all federal taxes, including the 25 percent paid by the top 1 percent. Just how much these taxes could be raised without dulling economic incentives and stimulating massive tax avoidance is unclear. But increasing the taxes on the top 1 percent by 25 percent wouldn't cover even today's budget deficit, let alone pay for new programs (universal health insurance, more school aid) or baby boomers' retirement costs.

It would be healthier if the trend toward greater economic inequality reversed itself spontaneously. The poor aren't poor because the rich are richer. Their poverty reflects low skills, poor work habits or bad luck. But if the middle class thinks the rich are grabbing most of the gains from economic growth, they will feel resentful. The result could be a self-defeating debate over income redistribution, not growth. To paraphrase economist John Maynard Keynes (1883-1946): The rich are only tolerable so long as their gains can be held to bear some relation to roughly what they have contributed to society.
Is that not good news?

Look, I don't despise the rich, I want to be rich. I have worked hard and aside from my stint in the military, pretty much every job I have ever had has been the result of rich people.

1 comment:

Anonymous said...

Very well put! Thanks.