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Red Herring in the Inequality Debate

Blogging Our Great Divide
June 18, 2015

by Bob Lord


It sounds crazy, but a major distraction in our debate about inequality in America today is inequality itself.

I’m referring here to the concept of inequality in the abstract. The overwhelming majority of Americans believe inequality is necessary to a well-functioning society. Without inequality, the logic goes, there would be insufficient incentives for hard work, innovation, and education.

Once this frame of logic enters the debate, it’s hard to move beyond it. Current levels of inequality do get aired, but the discussion often gets mired in questions of relative morality. Yes, $100 billion is a ton of wealth for one family, the Waltons, to control, but what about all those savings their business model brought to tens of millions of Americans? From that perspective, is it unfair?

On top of that, there’s an emotional distraction. Many Americans who are not super-rich themselves nonetheless dream of being super-rich one day. To them, inequality is not only necessary; it’s beneficial.

Want to remove these distractions from the debate?

Then approach our current level of inequality or, to use a less distracting term, our current level of wealth and income concentration, from the other direction.

Under this approach, the starting point in the discussion would be: Is there any level of wealth and income concentration that would be destructive to our society?

And the answer? Yes, of course there is. If one family held all the country’s wealth, our nation as a whole would be worse off. Note how this question overcomes the emotional pull in the inequality debate. While it is common for people to see themselves as future one percenters, no family with a last name other than Koch would delude themselves into believing they could one day control all the country’s wealth.

Next question: At some point, does increasing concentration of wealth and income become destructive to our society?

The answer again must be yes, based only on the answer to the first question. For example, if America were at the point where two families held all of our wealth, further wealth concentration would be undesirable, since we’ve already established that one family controlling all the country’s wealth is undesirable.

Next question: Once we reach the point at which further concentration of wealth and income become destructive, should we implement measures to ensure that further concentration does not occur?

Again, the answer must be yes, with no explanation needed.

And, finally, has America already reached the point at which measures should be implemented to prevent further concentration of wealth and income?

Essentially, we’ve now arrived back at the question whether one family should control $100 billion of wealth, but it’s no longer about the Waltons. And the data is overwhelming.

Citizens for Tax Justice reported that in 2012, twelve percent of all capital gains income reported by American taxpayers went to just 400 taxpayers.

On April 24, 2015, the Bloomberg Billionaires Index estimated that the ten wealthiest Americans now are worth, collectively, half a trillion dollars. The actual number is around $499 billion, but to these folks a billion dollars is no more than a rounding error.

Based on research by leading economist Emmanuel Saez, it was widely reported that between 2009 and 2012, 95% of the income gains in America went to the top one percent.

And there you have it. In order to understand inequality in America, don’t think about inequality.

Bob Lord, an Institute for Policy Studies associate fellow, practices law in Phoenix.

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