John C. Goodman

Because they do not seem to have any real solutions to real problems, the leftwing in this country has become fixated on a non-problem: inequality. In the process, people who harp on this idea often get their facts wrong. The following is my attempt to set the record straight.

Myth: Those at the bottom are worse off because the rich are better off.

"The rich are sucking up all the income," said Harvard economist Jeffrey Sachs on Morning Joe. Surveying the past two decades, Brian Wesbury gives this answer:

Yes the top 1% saw its share of that income rise from 8.5% to 16.9%. And, yes, the bottom 50% saw its share fall from 17.7% to 13.5%, but that smaller share in 2009 was $1.05 trillion, a 265% increase… In other words, it is true that incomes at the top have risen faster than average incomes, but it is not true that any group has been made worse off. Incomes and living standards for all Americans, including those in lower-income brackets, are up. At the same time, tax burdens for those in lower-income groups have fallen substantially.

Myth: The rich are not paying their fair share of taxes.

In fact, higher income taxpayers pay a considerably larger share of the tax burden than their share of personal income (see the chart here):

• The top 1% of the income distribution earns 18% of personal income, but pays 27% of total federal tax liabilities.

• The top 10% earns 31% of the income, but pays 44% of the taxes.

• By contrast, the bottom 60% of the population receives 25% of the income, but pays only 14% of the taxes.

Myth: The income of the rich has been rising relative to everyone else.

In fact, a large part of the apparent growth in income inequality is simply the result of differences in the way Americans pay taxes. Writing in the Wall Street Journal, Phil Gramm and Steve McMillan explain it this way:

In 1986, before the top marginal tax rate was reduced to 28% from 50%, half of all businesses in America were organized as C-Corps and taxed as corporations. By 2007, only 21% of businesses in America were taxed as corporations and 79% were organized as pass-through entities, with four million S-Corps and three million partnerships filing taxes as individuals.


John C. Goodman

John C. Goodman is Senior Fellow at The Independent Institute and author of the widely acclaimed book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and National Journal, among other media, have called him the "Father of Health Savings Accounts."