The Myths Of ‘Income Inequality’

It is an article of faith among progressives that income inequality is getting worse in California. In fact, claims of a widening gap between rich and poor are used nationally to justify raising taxes and accelerate the redistribution of wealth.

But like other urban myths, such as how Prop. 13 supposedly starved local governments, it is easily debunked by critical analysis of the data. As it turns out, while the rich are in fact getting richer, so are the poor.

First, no one disputes the tautological argument that the wealthy have more money than the poor. But policy leaders need to ask some important questions. For example, is that gap actually expanding? How do we measure “income?” If the standard of living is increasing for those at the bottom rung of the economic ladder, does it really matter how rich the wealthy become?

In January of 2020, the Public Policy Institute of California issued a report on income inequality which found that the gap between rich and poor in California was in fact larger than in 45 other states. But PPIC also acknowledged that “current government policies substantially narrow the gap between rich and poor.” Those policies include heavy tax burdens on the productive sector of the economy and massive transfers of wealth to lower-income individuals.

But in any discussion of income inequality, it is important to define the terms. Much of the most widely‐​cited work by mainstream media which “proves” increasing disparity is misleading because of the definitions they employ. Take, for example, the work of economists Thomas Piketty and Emmanuel Saez, two darlings of the left. How they defined “income” ignored several variables that substantially inflate U.S. income inequality. Those variables include whether corporate income should be attributed to individuals (it should), whether after-tax income is a better metric (it is), and whether the value of employee benefits should be counted (it should). In short, the work of Piketty and Saez has been substantially discredited by other economists. But it is unlikely that you’ll ever read about that in the New York Times.

Moreover, even if economists could agree on definitions, there remain many questions about income inequality. For example, is California’s relatively high disparity between the rich and poor the result of its progressive policies? Although the data is not clear on this, there is little denying that high taxes and heavy regulations result in the outmigration of the middle class, leaving the state with many poor (highest effective rate of poverty in America) and many wealthy with a sizable gap in between. …

Click here to read the full article from the OC Register.

Comments

  1. I’m not so sure that the income gap has not widened: The introduction of the internet and its related business has made a lot of individuals spectacularly more wealthy while the poor have gained only a little from redistribution. Doesn’t California have more billionaires than any other State, and even a trillionaire? If you just look at the net income of individuals, you don’t see this gap because the billionaires shift wealth across continents and into multiple companies or gifts to relatives to “divest” it from themselves directly. The net spendable income of billionaires may be down into six figures, which doesn’t seem such a big gap from those earning in five figures. But those who already possess great wealth have the capacity to create enormous additional sums, while those with little more than making ends meet will never create any significant wealth, absent some windfall like inheritance or lottery. If you earn a billion dollars and pay 50% in federal and state taxes, you still have five hundred million dollars.

  2. Pelosi is worth tens of millions of dollars….We should make her give us most of it since she is such a good progressive and should not mind if we tax her at 100%…..

  3. Guys, so the income gap is wide between the rich and working stiffs?

    So what?

    The reality is can you live with food, housing etc. being met? People who are rich can a) invest in businesses increasing income, b) buy goods and services that support the workers, and c) hire people to work for them.

    Just 3 reasons why it is no big deal. The hand wringers will continue to say how un-fair it is to have this. But again it is the Socialist/Communist delusional interpretation of economics.

    • Boris Badenov says

      The goal of Communism is to make almost everyone equally poor, except for the members of the party and the elite leaders. We see it in every communist country but the fools here don’t have a clue what they are wishing for.

  4. In the socialist utopia, the income gap between the haves (government) and the have-nots (“workers”) is even wider and the poor are even poorer and they do not even get a chance or opportunity to get more.

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