Extreme Economic Inequality is Good
by Ed Reep | Rutgers University
Ed Reep
Many in the media and politics dislike the fact that some of the rich in the United States are disproportionately wealthier than people in the middle and lower classes. They would prefer a society in which incomes were distributed more equally. There is nothing necessarily better about such a society, though.
Would you rather live in a place where some made enough money to live in garden apartments and some made enough money to live in houses, or would you rather live in a place where some made enough money to live in houses and others made enough money to live in gigantic mansions? Clearly the latter is better, because even though there is greater income inequality, incomes (and quality of life) are higher overall. The majority do not live like kings in the United States, but in spite of how very rich the top 1% of income earners are, the middle class and the poor are actually very well off compared to many parts of the rest of the world. They are rarely ever without food, clothing, or shelter, and have almost constant access to entertainment of some form.
Quality of life is very high in the United States thanks to our strong economy and fair social safety net. Where there are serious quality of life problems, such as in decaying urban areas, the roots are often social rather than economic. Some highly poor areas, due to the disciplined culture of their inhabitants, are actually more desirable places to live than less-poor areas ridden with drug abuse and broken families. Consider that the poorest town in the United States, Orthodox-Jewish enclave Kiryas Joel, is also one of the safest. Retooling our society to lessen the wealth gap between the rich and the poor would only marginally improve people’s quality of life, because it is already so high as far as the ability to buy things is concerned.
Furthermore, I propose that it is actually a desirable thing for there to be extreme income inequality in our society; that we need some to be much wealthier than others. The more money someone has, the smaller percentage of it they need to buy things, so that means they have more money free to invest. Investment, of course, is one of the essential engines for job growth and innovation in an economy, which helps further improve everyone’s income and quality of life. The very rich are also good to have around because they can be taxed at higher rates than the middle and lower classes. This is the same logic as with investment: they don’t need as much of their money to buy things. See, just because I don’t think there’s anything wrong with income equality doesn’t mean I’m against taxing the rich disproportionately or even very slightly raising their taxes. We just shouldn’t tax the rich with the intention of redistributing incomes in a Robin Hood fashion; we should tax the rich because we have no other viable way to support our bloated and corrupt federal government that has irresponsibly amassed huge amounts of debt by overpaying its employees, refusing to reform unsustainable entitlement programs, and overextending itself militarily.
One common misconception, though, is that the rich are not actually taxed as disproportionately as they should be. Billionaire investor Warren Buffet often complains about the fact that he pays most of the tax on his income through the capital gains tax, which is 15%, a lower percentage than the traditional income tax rate of upwards of 20% that most of the middle class pays. What Buffet neglects to mention, though, is that the money he is receiving as capital gains has already been taxed once before, so the 15% rate he pays on it does not do justice to the real amount of money he has forgone to the government. You see, when corporations earn profits, they have to pay corporate income tax, which can be as high as 35%. The 15% tax is then applied to individuals as profits are passed onto shareholders, directly as dividends or indirectly through the appreciation of stock. It is no surprise that the top 10% of all income earners in the United States paid about 70% of our federal taxes in 2009.
So, in conclusion, extreme income inequality is a good thing. I’m a part of the 99%, and God bless the 1%. We need them, and we are, for the most part, well off already. Remember, greed can be found both in those who have successfully satisfied it and those who have not.
Edward Reep is a Rutgers Business School student majoring in supply
chain management. He also writes an ethics column for The Daily Targum, Rutger's student newspaper.
