How Government, Not Capitalism, Is Causing Income Inequality

Impact

Jan. 17, 2012

Arguments claiming that income inequality is the foundation of the Great Recession, and of today’s sluggish economic growth, are false because they neglect to include income mobility, economic growth, tax changes, and government programs that keep the poor, well, poor. These myths have led many to look down on the top 1% when we should instead be promoting more of them. Households in this group should not be made the villains of slow economic growth and record budget deficits, which stem primarily from excessive government spending.

Although there are reasons to doubt some arguments made about income inequality, it is important to start with household income data. The Census Bureau reported that the top 5% of income earners have incomes above $180,000, and the top 1% includes not only millionaires but household incomes above $360,000. A 2011 report by the Tax Foundation noted in 2009 the top 5% had 32% of aggregate income; the top 1% paid 37% of taxes, the top 5% paid 60%, and the bottom 50% paid 2.3% of taxes; there were slightly fewer than 1.4 million households in the top 1% and this group paid the highest average tax rate of 24%. Additional evidence shows that the top 1% own around 40% of the nation's wealth, and 80% of the top 1% earned their income instead of the common misconception that it was inherited.

Some may argue that a country with an economic system based on capitalism does not have a heart and many people will suffer because they cannot fend for themselves. This is an unfounded argument based on a perception that the government is the primary source of benefits for those who have needs and are unable or unwilling to provide for themselves.

Religious organizations, charities, family members, and NGOs could replace welfare programs. These types of resources would have to be accountable, transparent, and efficient or risk closing; they would also have to provide valuable services because they will be competing for donations. Competition does not exist or is driven out by government programs. This is probably the biggest problem with government programs: they have the power of the purse and remain in business even when they fail.

To reform our society in a way that benefits everyone, we must educate ourselves and expand our knowledge of our world. As noted by Socrates, "The unquestioned mind is not worth living." In today's divided political sphere, more constructive debates are needed more than ever. Let us keep up the fight for liberty, America!