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Wednesday, September 1, 2010

The Myth of Income Inequality

The statistic keeps popping up that the top 20% of wage earners earn 9, 10 or 11 times as much as the bottom 20% of wage earners.* Politicians tell us this is immoral.

For this to be inequality, we have to pretend is that if someone finds himself in the bottom 20% of wage earners, he's stuck there --- there is nothing he can do to get increased income. This assumption is bogus.

The easiest thing you can do to increase your income is get older. The bottom 20% of earners is overwhelmingly inhabited by young people. A special example of a young person who gets a lower annual wage is the college student who works only in the Summer.

Generally, the young wage earner is most likely the newest person on the job. That makes him or her least experienced and least productive. As people gain experience, they also gain income, unless they decide to stay with perpetually low income jobs by frequent quitting.

As a worker ages, he or she gains experience and stability. Both of these qualities makes the worker more desirable and productive. The employer will pay more to retain the better worker.

Compare age versus income, 2008 **

There is no such thing as an income tax on the rich. There is only a tax on better workers, better producers. (The drop in average income after age 65 is presumably the effect of retirement from the work force)

In order to justify "progressive" income taxes, the politician must pretend to be interested in social justice or similar lies. In fact, politicians are greedy to take more of the peoples' money.

More taxes means less sales, less sales means fewer jobs, fewer jobs means no recovery anytime soon.

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* The precise multiplier is dependent on whether the statistician compared pre-tax wages or post tax wages. You see, politicians love to find new excuses to raise taxes so they can take more of the peoples' money for themselves.

** table based on ftp://ftp.bls.gov/pub/special.requests/ce/standard/2008/age.txt

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