Income inequality

By Walter Williams

Last month, the U.S. Bureau of the Census reported its findings on income and poverty. Median real income remained constant between 2002 and 2003 at $43,000; the official poverty rate rose slightly from 12.1 percent to 12.5 percent for a total of 36 million Americans; poverty rates by race remained unchanged at 8 percent among whites, blacks 24 percent and Hispanics 22 percent.

Dr. Daniel H. Weinberg, Bureau of Census division chief, added that income inequality remained unchanged with the lowest 20 percent of households ($18,000 and below) earning 3.5 percent of national income and the highest 20 percent ($86,900) about 50 percent.

The poverty report gives vice-presidential hopeful Sen. John Edwards a little fodder for his “Two Americas” stump speech. That’s the one where he says, “[There’s] one America that does the work, another America that reaps the reward. One America that pays the taxes, another America that gets the tax breaks.” This is demagoguery and unadulterated dishonesty that can only appeal to the misinformed and ignorant.

Let’s look at who doesn’t pay taxes. According to a study done by Scott Hodge, president of the Washington, D.C.-based Tax Foundation, and his colleagues, 41 percent of whites, 56 percent of blacks, 59 percent of American Indians and Aleut Eskimos, and 40 percent of Asians and Pacific Islanders will have no 2004 federal income tax liability. The Tax Foundation study concludes, “When all of the dependents of these income-producing households are counted, there are roughly 122 million Americans – 44 percent of the U.S. population – outside of the federal income tax system.”

Who does pay federal income taxes? The top 20 percent of income earners pay 80 percent, and the top 50 percent pay 96.5 percent of total federal income taxes. Given these figures about who does and does not pay federal income taxes, what are we to make of John Edwards’ stump speech? He’s right in one sense. One group of Americans – those at the top – work and pay virtually all federal income taxes, and another group – those at the bottom – work and pay little or no federal income taxes.

There’s another issue about income inequality. If it’s your vision that out there somewhere there’s a pile of money to be divided among Americans, the reason the top fifth of Americans have much more than the bottom fifth is that they got to the pile of money first and took an unfair share. Justice, of course, would require that their ill-gotten gains be confiscated and redistributed to their rightful owners. But in a free society, income is mostly determined by one’s ability and willingness to produce goods and services that satisfy his fellow man.

The top fifth of income earners (earnings greater than $84,000) are not only more productive and have higher skills and education than the bottom fifth of income earners, they work more hours and have more people in their household working.

There’s something else that gets little attention. There’s considerable income mobility in our country. According to Internal Revenue Service tax data, 85.8 percent of tax filers in the bottom fifth in 1979 had moved on to a higher quintile, and often to the top quintile, by 1988. Income mobility goes in the other direction as well. Of the people who were in the top 1 percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988.

Here’s my question to you. What are we to make of politicians, and other charlatans and quacks, who are knowingly dishonest and use the politics of envy to exploit American ignorance for political gain? It’s immaterial whether you’re for George Bush or for John Kerry winning the White House – do you think politicians running on the politics of envy bodes well for the future of our country?