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Although much public opinion claims that the rich aren’t taxed enough, empirical data shows otherwise. According to Steven Horwitz, an economist at St. Lawrence University, Warren Buffett, one of America’s richest, contributes more than his fair share. Calculating Buffet’s total tax receipts corresponding to his income’s percentage of total taxes paid (in the US), Horwitz found that “[the millionaire’s] income was about 0.00065 percent of total income. Total income taxes paid by Americans in 2010 was about $900 billion. Nine-hundred billion multiplied by 0.00065 percent is $5.85 million, hence, Buffett’s ‘fair share.’ Except Buffet paid $6.9 million” (Horwitz).
There is no sound economic reasoning or data proving that taxing the rich more will help people’s standard of living. Art Laffer, a famous economist, made the argument that because people don’t work to pay taxes, but work to earn money for themselves, they will change where they earn their income, how they earn it, how much and when they earn it just to escape paying more taxes. Statistics show that federal revenues have rarely fallen to 17% or increased to over 20% ever since the 1960s, suggesting that the rich are adjusting to their tax burden. Increasing their taxes actually may not help others (Stossel).
The real causes of the income gap is people’s ability to choose according to the conditions around them. As previously mentioned, more people going to college, early retirements, and having more income mobility are causes of income inequality rising; but they are effects of people making decisions by way of free market capitalism. If taking into account these real causes, income inequality may be rising, but in reality is just offset by the gains society is overall making by these increases in educated people, people able to retire early due to innovations in healthcare, and overall living standards due to income mobility (Smith & Freeman).
The correctly presented data also proves that income inequality is not increasing if looking at the big picture of after-tax income, average market income, the adjusted cost of living index, and the Gini coefficient. In addition, the fallacy of taxing the rich in attempt to improve living conditions for the poor and overall decrease income inequality is proven by the destruction of increasing taxes on the rich using as an example famous economist Thomas Piketty’s tax plan.
Redistribution programs to the poor do not help either. Social Security and Medicare, the two largest transfer programs, send most of the funds to the elderly – who are mostly not poor. These two government bureaucracies make up 1/3 of federal spending – mostly going to the well-off, contrary to what is normally believed. And ironically, the programs that do send most of the funds to the poor just stagnate the poverty. “When the poor make an effort to improve their skills and work hard to increase their incomes, the government money and benefits they receive are reduced by a large percentage of their additional earnings. Sometimes it’s more than 100 percent, leaving them with less take-home income than before” (Lee). Government trying to redistribute the wealth is going about incentives all wrong (Lee).
And really, is government capable of deciding what is best for the poor? After all, we can’t group every poor person into one group and determine what they all need – it becomes mostly wasteful and likely can’t solve all the problems that contributed to the person’s poverty. The best solution to help the poor is the freedom to help themselves and/or get help from private charities, organizations, churches, and communities. Private funds means that the people who are in charge of and/or gave those funds want to see that the money gets used correctly and not wastefully. A private charity is able to give much more than money as well. They can give opportunities for the future in addition to human care and compassion. A church is able to give spiritual help. Private help to the poor aligns incentives to make sure the people are actually helped, while government misuses money because it was not “the government’s” money in the first place (Hebert).
Reducing poverty should be the focus rather than on income inequality between the rich and poor. The best solution to reduce poverty is to allow more economic freedom. Nathan J. Ashby and Russell S. Sobel of West Virginia University “found that increasing the economic freedom of a state by one unit (equivalent to moving from 40th-freest state to 7th-freest-state) increased the incomes of its poorest residents by 11 percent. By contrast, the same change increased the incomes of the richest quintile by just over a third of that (4.3 percent). The middle class also saw increases, greater than the rich but less than the poor. Increasing a state's economic freedom by reducing taxation and regulation creates broadly shared prosperity across all quintiles” (Adorney). By enabling more people more economic opportunity, more people, especially the poor, are able to move up into higher incomes (Adorney).
Economic research clearly proves over and over again that income inequality is not rising; even accounting for rising numbers of college students, more people retiring early, and rising income mobility show that income inequality is not a problem, but rather a feature of a free market economy. If all people were equal, their incomes and their standard of living would be low. People living in countries like China and Germany in the past under Mao Zedong and Adolf Hitler respectively, had low standards of living under their rulers because taxes were high on the rich and income inequality was attacked (Robinson).
Free market capitalism is the solution to allow the opportunity for people to flourish, and make their own decisions according to opportunities that arise from their own work and of the interactions of people and businesses in the market. America was founded upon being a land of opportunity, not on being a nation of people that are given equal results by way of redistribution programs or taxes (Reed). Thomas Sowell says it best: “Life in general has never been even close to fair, so the pretense that the government can make it fair is a valuable and inexhaustible asset to politicians who want to expand government” (Sowell).
Adorney, Julian. "Free the Poor." The Freeman 7 March 2014: 1. Web. 15 April 2015.
Freeman, Daniel J. Smith and Rachel H. "Income inequality may actually be good news." AL.com 6 February 2015: 1. Web. 6 February 2015.
Hebert, David J. "The Paradox of Public Assistance." The Freeman 24 January 2014: 1. Web. 15 April 2015.
Horwitz, Steven. "The Tax-the-Rich Truth Squad." The Freeman 22 September 2011: 1. web. 7 February 2015.
Lee, Dwight R. "Reducing Income Inequality at the Expense of the Poor." The Freeman 5 February 2013: 1. Web. 15 April 2015.
Robinson, Ron. "#43 – Income Inequality Is the Great Economic and Moral Crisis of Our Time." The Freeman 6 February 2015: 1. web. 7 February 2015.
Sowell, Thomas. n.d. Web. 20 April 2015.
Stossel, John. "Taxing the Rich." Townhall 29 September 2010: 1. web. 7 February 2015.
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