It may not have been totally in the spirit of the season, but I got into an interesting discussion about income inequality at a holiday luncheon yesterday.
I am against it; my luncheon companion has no problem with it.
He's especially concerned that President Obama wants to fix the problem by redistributing the bank accounts of the wealthy to the poor because it's not "nice" that some people have a lot of money.
My friend isn't unique in holding that opinion.
A Gallup report issued yesterday found that most Americans think income and wealth inequality isn't a problem but merely an acceptable part of our economic system. And if we must do something about it, a large majority believe we should grow the economy and increase equal opportunity so people "can get ahead if they want to."
In other words, a lot of Americans believe wealth inequality is a matter of choice. I suspect my friend is one of them.
So here are a couple of thoughts.
First, opportunity is not as equally distributed in the U.S. as it should be even though we've been at it since the country's founding (and redoubled the effort about 50 years ago). As I've written in other posts, lots of people still suffer from unconscious bias. And the legacy of past racism is evident in our cities, suburbs, schools, workplaces, shopping malls, and highways. In other words, everywhere.
Second, re-balancing wealth in the U.S. is not an issue of being "nice." A long litany of studies has established that wealth inequality reduces people's well-being, results in fewer public goods, and even lowers overall economic growth. (See, for example, this report from the International Monetary Fund.)
Third, while people certainly are entitled to what they earn honestly, our progressive tax system is designed to ensure that rich people pay a higher tax rate than poorer people. That helps to offset the regressive nature of other taxes, such as sales taxes and social security taxes that have income ceilings. But it's also designed to inject more fairness in our tax system.
Rich people have benefited from the U.S. economic system at least as much as from their own talent and luck. In fact, their luckiest break was being born in the U.S. As Warren Buffet admits, he probably wouldn't have been as successful had he been born in Bangladesh.
Unfortunately, the U.S. tax system now has so many loopholes and preferences that it is not nearly as progressive (or fair) as it once was. Fixing that problem would go a long way towards reducing income and wealth inequality.
I suspect that's what Obama has in mind. His political opponents, on the other hand, will undoubtedly portray it as increasing taxes on "job creators." Or, as my friend did, a Soviet-style form of wealth redistribution.
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