Solving Income Inequality will not solve the real problem: inadequate growth of wealth of middle and low-income people.
Income inequality remains a focal point in economic and societal debates, often emphasized as a marked disparity between the wealth of the top 1% and the middle class. Proposals for wealth redistribution, such as heavier taxation on the wealthy, dominate the discussions. However, this perspective presumes that the top 1% will perpetually generate wealth while the middle class remains passive beneficiaries of redistributed wealth. That is obviously not the desired state of our society (the middle class being the strong and proud earning engine), nor is it a sustainable long-term solution.
Many media misled the public to believe that the rich became rich because they paid less tax than the poor or the middle class. That cannot be further from the truth.
Unfortunately, the Media intended to arouse negative emotions to demonize the rich and increase the readership of their posts by deepening the nation’s cultural divide. Those emotional, wrong-headed articles did nothing to solve income inequality. Still, they served to divide the country, clouding the opportunity to define the real problem and diminishing the chance of finding a good solution.
Please see the Tax Foundation’s 2020 Tax analysis report (below) to clear the record and dispel the Media’s damaging misinformation.
The Top 1% paid an average tax rate of 26%, and each of the Top 1% people paid an average of $458,894 in tax.
The average tax rate of all taxpayers was 13.6% (half of the Top 1% people’s rate), and the bottom 50% of taxpayers’ tax rate was only 3.1% (that is nowhere close to the 26% the Top 1% people paid).
The average amount of tax paid by Americans was $10,845. The bottom 50% of taxpayers paid an average of $504 (five hundred and four dollars) in tax. Compared to the Top 1% of taxpayers ($458,894), it is indisputable that the “rich” paid much more of the taxes collected in the country. The rich (Top 1%) paid a much higher tax rate of 26% and a higher amount of tax at $458,894 per person.
Now, let us define the problem and find a solution.
Income Inequality is a symptom, not a problem. Wealth re-distribution may temporarily relieve income inequality but does not solve the real issue: the middle class’s slow and inadequate income growth.
What we want to solve is not to lower the income of the wealthy but to increase the income of the middle class. Wealth re-distribution is solving for lowering the income or wealth of the rich but does nothing to improve the income-earning potential of the middle class.
Once the Media’s misinformation of classifying Income Inequality as the problem and caused by the Rich paying lower taxes than the non-rich has been de-bunked, we can see that the problem is Not Income Inequality but the Middle Class’s Wealth Generation capability has not been keeping up with the pace of technological change in our society and the new economic truths.
The solution is, therefore, obvious: we should empower the middle class through not just education and job training (which does not create significant wealth) but also entrepreneurship and accessibility to capital, transforming them into wealth creators in their own right.
While education and job training are critical elements for personal development and job readiness, educated employees can benefit employers and the economy but may result in income stagnation for middle-class individuals. Essentially, individuals can find themselves trapped in a cycle of earning wages with limited opportunities for significant wealth creation.
Furthermore, higher education creates elitism. Education is sometimes the barrier to blocking low-income people and people with limited resources from moving up the social and economic ladder. Broadening access to higher education does not enable low-income people to create wealth. Instead, it traps them into debt and succumbs their minds to being wage workers for those who know how to create wealth. Education is only sometimes the solution to Income Inequality. Many times, it may be the reason that causes Income Inequality.
Labor unions are not the solution to wage stagnation or wealth creation for the middle class. Labor unions are monopolies of the job markets they dominate. Labor unions block people outside the unions from seeking employment opportunities, limiting willing and able Americans from seeking advancement in their earning opportunities. Labor unions are never about creating value for the employer’s customers. Their sole purpose is to secure their union members’ jobs at the expense of job market growth. Labor unions reduce the size of the job market for union members and non-union members. In other words, labor unions reduce the economy’s growth for all of us.
To break free from this wage earner cycle and unlock the potential for wealth creation, fostering an environment that encourages and democratizes entrepreneurship is essential. The middle class must have the tools, resources, and opportunities to create and grow their businesses. Not only can this lead to increased income, but it can also build wealth over time and stimulate economic growth in our country.
We have seen and read many success stories of low-income people, many immigrants who broke free from poverty by creating successful businesses. These people’s success required:
Hard work.
An excellent solution to a problem that they could solve.
Access to some initial capital.
Luck.
Our society can help democratize three of the four above success requirements. That is how we can help improve middle-and-low-income people to accelerate their wealth generation capabilities.
Empowering the middle class through fostering entrepreneurship and facilitating access to capital can turn them into wealth creators. This approach reframes income inequality as a symptom, not a problem, enabling us to tackle the root causes and build an economy that promotes wealth creation for all, thus helping to alleviate income inequality over the long term.
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