Income and Wealth Inequality

We hear a lot of complaints about income and wealth inequality in the United States.

There are an increasing number who believe that if we could just get billionaires to pay their fair share of taxes there would not be any problems in the world.

Elon Musk seems to be the one that those on the Left are most angry about.

This PhD in Gender Studies (they really give an advanced degree in that?) is so angry about Elon's billions that she is not going to buy a Tesla or Starlink or use Grok.

However, she did not have a problem using X to call Musk "a billionaire Nazi"?

Of course, they all seem to ignore the fact that most of the billionaires like Musk have built businesses that have created jobs for millions of workers which allows them to put food on the table for their families and to pay billions and billions in taxes on the income they earn.

For example, the latest estimate by Grok is that 150,000-160,000 people are employed in the companies that make up the bulk of Elon Musk's wealth---Tesla, SpaceX, Twitter, Neuralink, The Boring Company and xAI.

Billionaires have also improved the lives of billions of people around the world.

They have also made a lot of people financially comfortable with investments in their companies or the products they have enjoyed because of it.

Leftists in California are attempting to put a issue on the ballot in November that would impose a one-time tax of 5% on the wealth of any California resident with a net worth of $1 billion or more.

This is supposed to support healthcare, education and food assistance programs.

Of course, the top 1% of income earners already pay almost 50% of the income taxes in the state.

At least six billionaires have already left the state due to this proposal which, if passed, would apply to residents as of January 1, 2026.

Those billionaires include Google founders Larry Page and Sergey Brin who have a combined fortune of over $500 billion.

Source: https://nypost.com
trib.al/qQFsBLF

In all, an estimated $1 trillion of the $2 trillion of wealth that is targeted by the tax proposal has already left the state due to the possibility it might be passed by voters in the Golden State.

Of course, left unsaid is where does California go next for revenues when this money quickly runs out?

And the ongoing income that came from that wealth has also left the state to not be taxed again?

The problems seem to have a way of compounding in California.

The total above does not include the wealth of Mark Zuckerberg.

It was reported this week that the Facebook founder has purchased a $150 million property in Miami to be his new principal residence beginning in April. You can be sure he severed domiciliary ties with California before January 1.

Source: https://www.foxbusiness.com/real-estate/mark-zuckerberg-becomes-latest-california-billionaire-relocate-florida-amid-tax-concerns

Yes, there is income and wealth inequality in the United States.

There has always been income and wealth inequality in the world.

It has been the case since the beginning of mankind.

There was income inequality in ancient Babylon, Rome and Egypt.

There was wealth inequality in Europe in the 17th century, in Asia in the 18th century and South America in the 19th century.

Africa had much more income inequality in the 20th century than the United States did at that time...or now.

There has been income inequality in every society over history.

There have always been some in a society that found ways to make greater incomes and accumulate more wealth than others. 

I doubt that will ever change.

Income inequality is typically measured by what is called the Gini coefficient.

The Gini coefficient measures the inequality among the values of a frequency distribution. 

A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same. In contrast, a Gini coefficient of 1 (or 100%) reflects maximal inequality among values, where a single individual has all the income while all others have none.

This graph shows the Gini coefficient for the United States since 1913.

In truth, income and wealth inequality was undoubtedly even greater in the United States before this data was first collected considering the fortunes of Andrew Carnegie, John D. Rockefeller, Cornelius Vanderbilt and J.P. Morgan in the early 20th century.

Source: https://ourworldindata.org/economic-inequality

Income inequality today is about the same as it was in the 1913-1940 period. Of course, that period was notable for the emergence of large industrial enterprises in the United States which included the emergence of the auto industry, oil companies and the radio. This fueled wealth and income concentrations in the entrepreneur class that developed these industries.

Inequality improved in the post-World War II era as more and more people were able to enjoy middle class incomes with good paying jobs in the manufacturing sector that flattened the Gini coefficient.

However, that began to change in the United States in the mid-1980's as technology began replacing manufacturing as the fuel behind the economy in the U.S.

We entered an information age from a manufacturing age. Manufacturing spreads income in a much broader swath in an economy. You need to pay a lot of workers to build an automobile.  You only need a couple of computer programmers to develop a video game or an app that might bring in billions in income.

There is no question that income inequality in the United States has increased over the last 40 years. This is the direct result of technology innovation, internet commerce and artificial intelligence as well as a  decline in manufacturing. However, we are far from being outside of historical norms insofar as income or wealth inequality.

The United States is also not outside current global norms.

The United States actually has less income inequality than the world at large.

Source: https://ourworldindata.org/economic-inequality

It should also be noted that the calculation above does not include welfare benefits for those with lower incomes. This would move the Gini coefficient lower in the United States.

It also does not take account of income taxes which, due to the highly progressive income tax system in the United States, would also move the Gini coefficient lower in the United States.

It should also be noted that the poorest 50% in the world are accounting for much more of consumption spending today than they ever had while the share by the top 1% has been steadily declining.

As far as the progressive income tax system in the United States,is concerned compare the amount of income taxes paid between the top 5% of income earners and the bottom 95%. 

The top 1% of income earners paid 47% of all income taxes in 2021.

The top 5% paid 67% of all income taxes.

Here is a comparison of the United States to some selected countries around the world on the Gini coefficient.

The United States is basically on par with Russia and China on income inequality and is more equitable than countries such as South Africa, Mexico, Brazil and India.

Source: https://ourworldindata.org/economic-inequality

It is true that the United States has more income and wealth inequality than European countries that have adopted stronger socialist welfare states than the U.S has.

However, the actual gap has not really changed much in the last 45 years between the United States and these other countries.

Source: https://ourworldindata.org/economic-inequality

You also have to take into account the relative differences in the amount of income and wealth there is to divide between various countries.

The size of the pot of income and wealth also matters.

For example, Czechia has a Gini coefficient of .33 which is the top income equality score in the world.

However, Czechia's GDP per capita is almost $30,000 less than the United States.

There is a big difference in being in the bottom half of income earners in 'equitable' Czechia compared to living in the so-called 'inequitable' United States.

Source: https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=line&time=1990..2024&country=USA~CZE~OWID_WRL~OWID_EU27

The same is true comparing the United States to the European Union countries where the U.S. has $20,000 more GDP per capita annually on average.

You can also see that the U.S. GDP advantage has widened over the last five years due to technology innovation and the income and wealth effect associated with it.

I understand the concerns about income inequality in the United States. However, it is hard to take anyone seriously when they say that things would be better if we were Czechia, China or France.

We should not ignore the issue of income inequality in public policy discussions but our time would be much better spent working to make the economic pie bigger rather than worrying about how to slice it.

The bottom line is that we are in this together in this country.  President Kennedy said it best 60 years ago when he said, "A rising tide raises all boats".   

The reality is that when the rich do better it follows that everyone generally does better.  If the rich become poorer, we all most certainly will become poorer.  

We need to start recognizing that if the 1% and 99% work together we will get much more than 100% in the end. 

If we pit the 99% versus the 1%, it is guaranteed that we will get much less than 100%.