INCOME INEQUALITY

A hot political issue this political season is income inequality.  The heart of the debate is that it doesn’t seem fair for some people to make millions while others are living close to poverty.  The government already redistributes wealth through a variety of welfare programs, taxes, food stamps, Medicare, Medicaid, Social Security, etc. but advocates want to see a lot more.  Is this fair?  Is it feasible? Are there unintended consequences for even more income redistribution?  Let’s check it out by first reviewing the scope of the problem:  according to IRS data for 2013, the wealthiest 2.4% of taxpayers pay about 48.9% of all individual taxes; however, they also make over $250,000 adjusted gross income.

The United States’ economy is fueled by free enterprise, also known as capitalism.  Being able to make a better life for yourself and your family motivates people to devote the time, energy and work necessary to become financially successful.  This system, however, does result in some being very rich and some being poorer.  Free enterprise, as practiced in the United States, contains economic safety nets to help ensure that no one is destitute.  Even so, some will still be bad off.  Here’s where charities play a large roll, as well as simple government policies, such as those that require that every hospital to treat people even when they can’t pay.

For average income Americans, the Social Security Administration recently reported that 51% of Americans make less than $30,000/year.  This poor record is the fault of the Federal government in over-regulating businesses, in having an absurdly high (35%) corporate income tax rate that forces U.S. companies to relocate overseas where rates are much lower, and having high individual tax rates (since many small businesses file as individuals).  All of these policies are advocated  by the Democratic Party, who, in the same breath, says they’re for the “little guy” and for the poor.

Free enterprise is not perfect but has moved billions of people out of poverty in India, China and other countries. The Federal government is taking the freedom out of free enterprise in the United States.

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