Friday, January 19, 2007

Is Income Inequality a Real Problem?

I have taken the liberty to share with you all a very well written and well informed letter to the editor that I read in today's Wall Street Journal. The writer echoes my thoughts exactly, and he epitomizes what it means to be a fiscal conservative.
Is Income Inequality a Real Problem?
January 19, 2007; Page B4

Thomas Piketty and Emmanuel Saez clearly have an ax to grind in favor of higher tax rates at the top ("How the Income Share of Top 1% of Families Has Increased Dramatically," Letters to the Editor, Jan. 11). Their figures are skewed by excluding government transfers, which take a significant percentage of many households' income away at the bottom.

But the bigger issue is what they leave out entirely: Even if income "inequality" is growing, is that a problem? Any economy arguably needs a section of households whose income exceeds their spending, thus generating new capital to invest.

Much of the after-tax income of the top 1% is not "enjoyed" by such households, rather it is reinvested. Taking a bigger share for government either shifts the marginal dollars into spending by recipients of transfer payments or into low-efficiency government "investments," thereby creating a lower standard of living for all.

It is absolutely true that much of the income at the top is never spent, and that the investments made with unspent income benefit all, not just the actual investor. In fact, as has been seen in huge charitable gifts recently, much ends up being given away, albeit outside of government programs. The only question is who should manage the capital created by those who have managed to be so productive that their incomes are so high: the government or the households that generated the capital in the first place?

Anyone who answers "government" not only has a blind eye for history, but isn't much of an economist.

Gary C. Simons
CEO, Upside Investments
Calabasas, Calif.

To sum this up, rich people are rich for a reason, and their wealth does not only benefit themselves, but our nation as a whole. It is not the government's place to take away what these people have worked so hard to build and give it to those less fortunate, be it through taxes or through an artificially high minimum wage.

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