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Income Inequality

While it is easy to lie with statistics, there seems to be more evidence to support the claim that income equality in the U.S. is rising than evidence that contradicts it. The phenomenon is real.

The Issue

Mobility between income groups makes any static analysis meaningless. It has been estimated that as much as 10 percent of the top quintile drops down to a lower quintile each year. As much or more churning occurs among the other quintiles.

Some of the inequality that people object to can be justly reduced by ending the privileges granted by the state to the wealthy. “Corporate welfare” in the form of subsidies and favorable treatment diverts hundreds of billions of dollars a year toward a favored few, and invariably into the hands of those who are already well-off. How many doctors, lawyers, and professional athletes would live as well as they apparently do if their professions were genuinely opened up to competition?

At the opposite end, looking at the poorest quintile, we can see how state-granted privileges can have the opposite effect. The entitlement to welfare benefits - food stamps, free housing, free health care, cash benefits - has made fool’s choices out of working for the minimum wage, living with mom, and not having children out of - wedlock.

Our Stance

Would income inequality be reduced if we got rid of some of these privileges? Maybe. But one thing is certain, increasing taxes on the “rich” is not the way to reduce inequality. Such taxes only make it more difficult for middle-class people to earn their way to upper-income status, thereby preserving the privileged status of the rich. And when they discourage work or investment, high marginal taxes destroy jobs and economic efficiency, which reduces the size of the pie for everyone, rich or poor.

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