Income Inequality: Let It Be

Income inequality. It surely doesn’t sound like a good thing. I’d imagine that no one particularly enjoys being financially ‘worse off’ than anyone else, and that’s exactly what President Obama appealed to during this year’s State of the Union Address. While he did an excellent job giving his speech (as per usual), he failed to mention one very important detail about dealing with income inequality: is it necessarily bad to have it at its current levels and, if so, what should we do to fix it?
The rich are getting richer and the poor are getting poorer. I’m sure that you’ve heard of this phrase before, and there is definitely a substantial amount of evidence to support such a claim. According to the Central Intelligence Agency in 2007, the Gini Index, a method of measuring income inequality in the U.S., was 45, a sharp 11 percent increase from 1997. However, according to the Bureau of Economic Analysis, the country’s average annual GDP has grown approximately 3.13 percent from 1960.
While the income gap continues to widen, the country is also getting richer. So why is it that Americans are continually pressuring politicians to increase the taxes on the rich for simply being rich? Surely, with this rationale alone, increasing taxes would seem unreasonable, even unethical. However, if the rich gain their monetary wealth unethically, then they do deserve this proposed tax increase.
According to Gregory Mankiw from Harvard University, a significant cause of the widening income gap is technological innovation, as seen by the relationship between median income trends and timelines of certain technological innovations since the 1960s. How do these innovations create a widening income gap? People, including those involved in finance, that innovate are typically more educated and more talented than the average person, which correlate with their success. Does this seem unethical? I would say no.
Now, I’ll pose the question again: what should we do to fix this income gap? According to a poll conducted by CBS, 60 percent of Americans agree with increasing taxes on the rich, and that, at least to me, seems unethical. It is not only unethical, but it is also (at certain levels) inefficient. According to Austan Goolsbee from the University of Chicago, increasing taxes on the rich produces the same, if not more, inefficiencies than taxing other demographics, which directly contradicts the popular notion to increase taxes on the rich.
While it may seem unethical for the income gap to be as wide as it currently is, I fail to see how it is ethical and economically sound to increase taxes on the very rich simply because they are more successful. In any modern society, there are some people that are rich, some that are poor, and many in between.
It is definitely concerning that the income gap is widening, but that in itself is not a sufficient enough reason to accept the popular notion to increase taxes on the rich. Unless people both provide sufficient evidence that the income gap is a pressing issue and a reasonable proposal to correct it, it is simply inappropriate to propose lousy legislation to strike at the achievements of the rich. Perhaps people should stop caring about those that are successful and start caring about themselves: maybe they’ll also become successful if they do.
Mavrelis is a member of
the class of 2017.