The math of inequality

Posted on October 1, 2010 in Equality Debates

Source: — Authors: – Opinion/Fp/Letters to the Editor – Re: “The myth of inequality,” Terence Corcoran, Sept. 17
October 1, 2010.    Financial Post Staff

Mr. Corcoran did not seem to do his math before publishing his editorial.

In his article he included two charts: one shows that the top 10% of U.S. earners held about 48% of the pretax income, and the other shows that the same top 10% pays 45.1% of all taxes paid. He went on to attack Obama’s statement that “a disproportionate share of the nation’s wealth has been accumlated by the very wealthy.”

Note that “the very wealthy” probably refers to the top 1% that held about 24% of the total income. Do they contribute more than 24% of the total tax collected? I doubt it. Does Mr. Corcoran understand the meaning of the word “disproportionate”?

Mr. Corcoran also talks about the equalization effect of the tax system. If there were any such effect, one would expect the top 10% of earners to pay more than 48% of the tax collected — that is, more than their share of the total income.

This is not Mr. Corcoran’s first piece on income “equality.” He kept using the OECD chart that shows the portion of taxes contributed by the top 10% earners. However, this chart on its own has no meaning: it has to be paired against the chart that also shows the share of pretax income held by the top 10%, as he does this time. What he failed to realize is that by posting the two charts together, he is arguing against the very fact he himself posted.

Michael Wang, Toronto

Inequality of income is the next inequity to be addressed in our so called “land of equality,” as more people come to realize the incredible inequity of income that exists in Canada and throughout the world cannot be justified as deserved, as there is no free will and therefore people who have the money only have it by virtue of the accident of birth.

As it becomes accepted that all situations are determined by forces other than oneself and so no one deserves their predicament, addressing inequality of income becomes more pressing. Religion is no longer the guarantor. The poor now realize there probably is no afterlife where amends will be made and injustices righted. There is no heaven for the poor where the tables will be turned (nothwithstanding Jesus Christ’s assurances).

Mr. Corcoran’s assiduous analysis of a particular graph does not persuade that there is no inequality of income. We’re past that — we can all see for our own eyes the glaring disparity. And it’s such a huge disparity that the direction hardly matters. Trouble is, the myth of dessert has been exposed as false — nobody deserves anything; just as no one deserves to be born with Down’s syndrome or fetal alcohol syndrome. How would Mr. Corcoran have fared if he was born on a reserve? And equality is a constitutional right, so the law will, eventually, due to reason, (the government’s bench-stuffing antics will only prolong the inevitable) require redistribution. Small-government egalitarianism is the next wave. Keep capitalism but address inequities.

First step: Tax the super-rich (start with inheritance tax) and eliminate poverty in a week. Big government not required. Less in fact: Without giving up the elimination of poverty, we could make the first $100,000 tax-free (freeing up tax-assessment resources). The middle class could be liberated too. How many trillions would government get if you could leave only $1-million to each child?

Mac Walker, Edmonton

In Mr. Corcoran’s excellent article about the myth of inequality, he in essence asks, “Why the inequality of incomes in a democracy matters?” The implicit assumption in the question is that the market place more or less distributes incomes fairly according to the supply and demand for labour and skill. However, Warren Buffett notes that, while a rising tide lifts all, the tide lifts some faster than others.

For example, 50 years ago an NHL star might have earned 10 times the income represented by the average industrial wage (AIW), and today it might be 100 times. Were the stars of yesterday any less entertaining than the stars of today?

Psychologists tell us that the desire for fairness is innate, and regardless of whether or not we have the good fortune to live in a wonderful country – we still want things to be distributed fairly. As any parent knows, the notion is expressed quite early on in life when a child first proclaims, “It’s not fair!”

George Carr , Toronto

Re: “The equality obsession,” Peter Foster, Sept. 18

I lived under a repressive Communist tyranny for seven years and I was elated when I was able to flee from there. So I assure you I am not a communist, a socialist or a left-leaning liberal. I believe in free enterprise. But I don’t agree with some of your statements. You assert that entrepreneurs and executives do not earn their wealth “at the expense of anybody else.”

There are many examples when they do. When a public company’s shares are bought by investors and the corporation hires an executive, in most cases they need to issue additional shares to give to that person, e.g. 4% addition to the number of shares outstanding. By so doing they are diluting the value of the shares, therefore the shareholders loose 4% of value.

When a poorly performing CEO is fired, he or she is given huge sums of money in spite of the failure (due to a contract). The conclusion is that very often employees or shareholders suffer due to the failure of management. So some executives do earn their wealth at the expense of others.

You call Wall Street bankers useful scapegoats. How can you make such a statement? It has been well-documented that bond traders caused the financial crises with the use of credit swaps. Read Michael Lewis’s book The Big Short. It describes in detail all the immoral, fraudulent activities of U.S. commercial banks.

Finally, free enterprise has got out of control during the last 10 years. The theories of Milton Freedman, although they are very convincing, did not work. His followers in government contributed to the global financial crises. The Federal Reserve kept interest rates too low for too long (Alan Greenspan admitted he was wrong), the SEC did not do its job. Many economists and experts are acknowledging now that limited government controls are necessary to avoid the excesses we had to suffer through.

I did not mention all the illegal activities and fraud that caused the ruin of many corporations (Nortel, Enron and many others). It is unfortunate that the editorial board of the Financial Post chooses to disregard all the facts listed above.

Andrew Szirt, Laval, Que.

It’s interesting to note that Bill Gates, one of the philanthropists cited by Mr. Foster, is also acknowledged by Diane Francis for his efforts to help improve the U.S. education system. If Bill Gates had attended one of the schools described in the documentary Waiting for Superman, he wouldn’t be the benefactor he is today. In “The myth of inequality,” Terence Corcoran asks why inequality of incomes, “even matter in a market economy where no kings rule by force and no aristocracy plunders the people?” What does matter — for Canadians as well as Americans to be able to participate in our knowledge economies and make a decent income — is access to quality education.

Valerie Arlette, North Vancouver, B.C.

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