Business/Economy, Columnists, Featured, Mike Rosen, National

Rosen: The reality of income inequality in America

In a political auction for seductive but unachievable outcomes at someone else’s expense, socialist and progressive politicians unconstrained by economic reality can always outbid conservatives. Bernie Sanders’ utopian ravings and Elizabeth Warren’s cornucopia of extravagant “plans” magically funded by a new tax on “wealth” (on top of sharp increases in taxes on income) is this election season’s theme.

Their rallying cry is the evil of “income inequality.” But income inequality is not evil, it’s unavoidable and an essential element of a market economy and a free society. As historian Will Durant observed: “The concentration of wealth is a natural and inevitable result of the concentration of abilities in a minority of men and regularly recurs in history.” In microcosm, an obvious example is the disparity in income between a relative handful of elite professional athletes, rock stars, actors and captains of industry compared to those of average ability in their respective fields.

Durant added, “Despotism may for a time retard the concentration; democracy, allowing the most liberty, accelerates it.” Throughout history, he noted, societies have dealt with income inequality through, “legislation redistributing wealth or by revolution distributing poverty.” Alexis de Tocqueville, writing in Democracy in America in the 1830s, cautioned that democracy could be taken too far, “that there exists in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level, and reduces men to prefer equality in slavery to inequality in freedom.”

The French Revolution of 1789 and the “Reign of Terror” that followed consumed itself in atrocities on persons and property in the name of “egalitarianism.” The difference between a prosperous free society like ours and impoverished, collectivist and statist despotisms is the difference between equality of opportunity and the self-destructive egalitarian notion of equality of outcome.

There’s a great deal of income inequality in America by design. For the vast majority, income disparities are mostly related to differing levels of education, skills of marketable value, health and physicality. But this country’s “poor” are only relatively poor. We have no abject poverty of the kind you find in less developed countries. On the contrary, America’s poor have cars, big screen TVs, computers, appliances, $200 basketball shoes and own homes. They’re also on the receiving end of abundant government programs that transfer income and provide for their needs.

Demagogic politicians and commentators tout 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. But the middle class as a whole has not been decimated. According to the US Dept. Of Commerce, in inflation-adjusted 2018 dollars, 60% of all families in 1970 had incomes in the range of $35,000 – $100,000. By 2018 that middle class grouping had shrunk to 42%. But it wasn’t because they got poorer. The percentage of families making less than $35,000 actually declined from 26% in 1970 to 19% in 2018. Over the same period, the percentage of families with incomes over $100,000 increased from 14% to 39%. The middle class as a group moved up, not down!

Incidentally, the influx of millions of legal and illegal immigrants from Latin America who took low paying jobs over these years had the effect of bringing down the national income average somewhat. Ironically, those same immigrants greatly improved their own standard of living from what it was in their native countries.

Income inequality is also skewed by official statistics that typically omit non-wage compensation like employer-provided health insurance and deferred compensation in the form of generous defined benefit pension plans for government employees. On top of that, the income of the rich is exaggerated by using their pre-tax earnings. This ignores the fact that the top one percent pays almost 40% of the total federal individual income tax burden all by themselves, while the bottom 50% pays only 3% of it.

Compounding the distortion, cash transfers and the value of government services and subsidies obtained by recipients amounting to trillions of dollars at the federal and state levels are simply ignored. It’s as if those taxes paid by the rich and the means-tested benefits given to those with lower incomes don’t exist.

As a matter of democratic political necessity, and in the name of “social justice” or public charity, government greatly mitigates income inequality in this country. Of equal importance is the reality that excessive taxation and redistribution of income and wealth can destroy a society economically. This is beyond Bernie’s and Lizzie’s comprehension ─ or concern.

Longtime KOA radio talk host and columnist for the Denver Post and Rocky Mountain News Mike Rosen now writes for CompleteColorado.com. 

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