David Moon: Income Redistribution Doesn't Fix Inequality

News Sentinel, December 14, 2013 | Go to article overview

David Moon: Income Redistribution Doesn't Fix Inequality


There is a difference between income and wealth. They are not the same thing. As counterintuitive as it sounds, seldom does high income result in wealth. Wealth almost always results from the deployment of capital, not the accumulation of excess income.

Wealth attaches to people who own things. As Robert Kiyosaki wrote in "Rich Dad, Poor Dad," poor people work for money; rich people have their money work for them.

Income is, oversimplified, the cash flow into a person's checking account each year. Wealth is the net amount of a person's valuable stuff.

By definition, there will always be a difference in the wealth of the people in the top and bottom economic rungs. In a capital-based society, that gap will always increase. Capital is a beneficiary of the power of compounding, increasing the monetary benefit of owning things.

As long as our economy is based on voluntary application of the factors of production, taxes are ineffective as a wealth equalizer. Is it any more effective at redistributing income?

To reverse income disparity seems easy. Just take some money from one group and give it to another. Then keep doing it. But that not only hasn't worked for 40 years, but the more we try to redistribute income, the larger the disparity has become.

Beginning in 1948 (when the U.S. began accumulating reliable income data), percentage increases in income were relatively equal across income groups. The top 10 percent of wage earners has obviously always earned significantly more than the bottom 10 percent or even the bottom 90 percent, but the annual percentage increases in incomes across groups remained relatively stable for 25 years. …

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