Income inequality in the US is pretty stark. We have tax and other policies that favor the wealthy, but we also have a system that rewards innovation and the creation of successful companies and that is where most large wealth comes from. A new paper from the National Bureau of Economic Research examines factors that appear related to income inequality and particularly to persistent low income. The woke among us claim that the US is irredeemably racist and that minority groups struggle because of that racism. It’s bullshit and this paper has a surprise for them. (NBER Paper)
The authors attempt to find out if the factors behind income inequality are due to differences between various ethnic and other groups or to differences within those groups. Guess what? Turns out it is almost all due to within group differences, which puts the racism theory right where it belongs–in the garbage can. Here is the money quote:
“inequality among individuals descended from a common ancestral origin is the dominant and overwhelming source of contemporary income inequality in the United States. Inequality within ethnic groups is an order of magnitude greater than inequality between them. Specifically, the decomposition reveals that within-group inequality accounts for a staggering 96% of total income variation, while between-group inequality contributes only 4%.”
The authors examined inequality over the last four decades and found no change in the relative contribution of factors to income inequality. They say that unequal opportunities and different productive behaviors within a group are the causes of this inequality. The primacy of these factors is found for both genders (yep, there are only two) and for all age groups. It also persists when educational attainment is considered. For first-generation migrants, between group differences account for a slightly larger impact on income inequality, but that disappears within a couple of generations.
Hi Kevin,
Good article but I do have an issue with this fragment: “We have tax […] policies that favor the wealthy.”
I think this is a value judgment. Because if we go down the road of favoring the wealthy then it’s typically used as a justification to make high-income earners pay higher tax rates. I believe the graduated income tax rates both encourage more envy of the rich, which divides us, and of big government, which is the source of most of our problems. If we just have the rich (actually, the high income) pay their fair share we could afford… take you pick of whatever those advocates want to spend money on. And then they find more things we should spend money on. The upward ratchet never stops.
What does “favor” really mean? There’s a large, emotional component in that word. But if I pay 25% and a poor person pays 25% then where’s the favor? Yeah, I know all the arguments – the poor use more of their income for necessities and all the other arguments that favor big government, over regulation and tax, borrow and spend programs.
A “fair” tax means we all either pay the same tax – say $1000 each – or pay the same rate – say 15% or 22% or whatever. Graduated taxes make people advocate more spending for themselves and take money from “the rich” (which, as you know, really means getting into the middle class because that’s where the money is) to pay for programs for those who pay minimal, if any, taxes. And the desire for spending never stops as we can easily see. Perhaps if everyone paid into the system instead of having payers and takers then our government would be better financial shape, meaning we will be in better shape over the long term.
Relatedly, this is why I favor a national sales tax (not a VAT): something everyone pays and is on the sales receipt. We all get government services and we all should pay something to them. We can discuss what is and isn’t (groceries, say) taxed, but the concept, to me, is the right one. I don’t think it could replace the income tax because the tax rate would be too high.
My guess is it will never happen. If we were to get a sales tax it would be a VAT so that no one really sees how much tax he really pays.
Regards,
Mark Pittman
Income inequality is another term invented by the Left. In America, it isn’t a bug; it’s a feature. It should be promoted. It’s incentivising.
income inequality has been studied forever and has been a concern for both parties, and what it really relates to is trying to ensure that everyone has the opportunity to life the best life possible and money has a lot to do with that. It makes sense to understand why some people or groups struggle and to try to figure out how to help them do better. It is up to the individual, but everyone needs some help now and then.