Tackling growing income inequality

It’s a shame that Fortune has not yet posted Geoff Colvin’s latest magazine column online; it offers an excellent answer to those who want to reduce income inequality in the United States by “soaking the rich.”

Since I can’t provide you a link, here’s a summary: Yes, the long-term trend shows high-income Americans getting a growing share of total income for the past 30 to 40 years.

But there’s an interesting exception. The trend reversed during the recession. The top 10 percent, 5 percent, and 1 percent of income earners saw their income shares shrink most dramatically.

So here’s one proven way to achieve greater equality: Make the country poorer. No one wants to do that, of course. A popular alternative is to extract more in taxes from the highest earners. Candidate Obama pledged repeatedly to do that, a campaign promise he prudently broke when he signed the bill extending the Bush tax cuts.

Why was Obama prudent in breaking that promise? As the next subheadline in Colvin’s column declares: “soaking the rich won’t fix it.”

Another eye-opener from the latest IRS data is that in the recession the top 5% and top 1% of earners actually paid tax at a higher effective rate than they did in the boom year of 2007, while everyone else paid at a lower rate. …

… The most surprising fact in the latest IRS data is that in 2008 the proportion of total income tax paid by the bottom half of earners sank to its lowest in decades: 2.7%. If we raise taxes on the rich so that we can cut taxes on the rest — thus making incomes relatively more equal — we’ll create an even larger class of Americans with little or no stake in financing the government. It’s a recipe for social and political instability or even chaos.

Colvin’s final key point emphasizes worker education as a key to help address the inequality issue.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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