Guest editorial: The facts don’t back up the notion that wealth redistribution is necessary
The COVID-19 crisis has caused not only a massive health crisis, but also an economic crisis with millions of Americans out of work. The country will eventually exit from this medical and financial catastrophe.
Unfortunately, people on the political left want to use this crisis as a reason to push for the forced redistribution of wealth in the United States. Their claim is that the rich are getting richer, the poor are getting poorer, and the middle class in shrinking. This simplistic idea has been around for decades.
It provides a rationale for higher taxes and a payment method to fund ambitious government projects, such as health care for all, free college tuition and the proposed new “green deal.”
The great advantage of the U.S. economy is that it is dynamic and, unlike sclerotic socialist economies, allows people to move from one income level to the next. Research shows that half of the people in the bottom 20% of income move to a higher bracket within 10 years. The economy is not a zero-sum game, it is about providing growth and opportunity for everyone.
A fundamental problem with the concept of income inequality is that it looks at income in one fixed period of time. Statistics fail miserably at tracking real individuals as they move among the various economic brackets during their working and retirement years. A person might sell a house and be “rich” for one year, working professionals may have a good income year followed by several lean years, or people may be “rich” until the day they retire and the next day become someone with zero earned income. Only 2% of people remain in the top one percent of earners over any five year period.
Are the rich paying their “fair share” in taxes? By any measure, the answer is “yes.” On average, the top 1% earn 20% of income but now pay 40% of all federal taxes. Tax rates could go higher for the rich, but it has been demonstrated over the past 60 years that higher tax rates don’t equate to more federal revenue. Through various actions, people facing higher taxes either shield income in tax-advantaged investments or work less.
The vast majority of the rich in the U.S. earned their success through hard work. The idea that wealthy people simply inherited their money is not supported by facts.
Income statistics also do not account for dollar transfers from existing government programs. Millions of people receive taxpayer-funded health benefits, food stamps and housing subsidies. Money from the Medicaid health care entitlement alone can now be used for low-income housing, food and transportation subsidies. None of this is counted as income. Studies show that personal income accounts for only 20% of economic resources available to those in the bottom 20%. Low-income Americans today receive more in non-wage benefits than in past generations, which substantially closes the income gap.
Are the poor getting poorer? Income statistics only measure cash. They don’t look at people’s true standard of living. The bottom 20% today have the resources to purchase most of the good things a middle-class family had 50 years ago, including color TVs, air conditioning, microwaves and cars.
There are two effective ways to help the poor. First, education is vitally important. In the top 20% of income earners, 60% have college degrees compared to 6% in the bottom 20%. A person with a high school diploma can expect to earn almost 40% more per year than a non-graduate. Second, a vibrant, growing economy helps people improve at all economic levels.
The U.S. economy is not about giving government officials the power to pick winners and losers. It is about people having the ability to succeed through hard work in a free and open society. Pushing the political idea of wealth redistribution and claim that the rich aren’t paying their “fair share” is not an effective or moral way to help the poor.
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