Vast economic disparity is harmful to the US economy

R1) Income inequality is large and growing The argument my opponent makes is fairly indisputable. He argues there is a large rich-poor divide in our country, something I would not deny. However, all market economies function best with *some* income inequality as productivity drives wages. It must be noted, however, the income gaps actually do not account for social services such as welfare, social security, and of course taxes. When this is accounted for, income inequality has actually decreased in the past decade [1. http://www.cato.org...]. Thus, assuming income inequality is an issue, the effect it has had on the economy has actually become *less* harmful over the last ten years. Further, a supposed hallmark of income inequality “growth” is that the middle class is disappearing and that they are essential for growth. But this is untrue. Some estimates actually suggest the middle class has been growing--at least over the short term--at the same time inequality is supposedly increasing. The middle class is larger and more diverse. What is also interesting is a large amount of inequality is due to immigration, as immigrants tend to be poorer than citizens born in the US [2. http://www.econlib.org...]. Inequality may actually not be a major issue because, at least in part, it is being fueled by increased immigration, not because we are getting poorer. In fact, we are getting richer--at the same time my opponent claims we are not. The rich get richer… but the poor also have been getting richer. It must be noted income is not necessarily a good indicator of wealth. Wealth includes possessions, assets, etc. A retired family would have an income of $0, however their wealth could still be fairly significant as they may own a mansion, multiple Ferrari's, and have $20 billion in a bank account. Wealth is a better indicator of economic status, not mere income. For example, the average income of people over 65 is half of those who are under 35 - 45. But their wealth is nearly three times larger than those who are younger. Further, those in the bottom 20% of the income bracket had their income increase by 91%between 1996 and 2005. Those in the top 1% in the same period had their income fall 26%. This means, in many cases, it is the poor who are benefiting in the modern world where inequality exists, not the rich [3. Thomas Sowell. Economic Facts and Fallacies, pp 152 - 153]. R2) Government intervention is needed This really is irrelevant. Whether or not a market economy functions best with or without regulation has no bearing on the debate. Even extremists like me accept some regulation probably benefits the free market. Though it tends to do more harm than good. Regardless, this is a debate as to whether or not inequality (at current levels) is harmful, not a discussion as to whether or not the government should intervene. R3) Taxes Although not directly relevant, it is important in this debate. If low taxes on the rich harm the economy, then my opponent wins the debate. Low taxes = more inequality. Thus, I will refute this. My opponent claims the economy grew in the 1970s when taxes were high and inequality was low. This is not entirely true. Measurements of income inequality has been researched significantly. An interesting paper in the American Economic Review suggests income inequality may be a good thing. It was noted that many one percenters--doctors, lawyers, and other productive professions--obtain higher income here than anywhere else in the world. This has attracted high skill immigrants to come to the US and increase productivity and economic growth. Thus, inequality has fueled immigration for skilled workers. To cite a personal anecdote, my father is an Opthamologist. In his office, he has hired a Cuban immigrant who fled Cuba in order to have a better life--this Cuban is also a doctor. He works for my father until he can obtain a US practicing license. Thus, inequality for high skilled workers actually attracts productive human beings to the US. The paper also has interesting points: There are many types of inequality. There is bad inequality--that is, you are rich because you inherited the wealth. But there is also good inequality: you are rich because you worked hard and made a company. In the 1970s there was actually high inequality, and it was the ‘bad’ kind. But it began to reverse in recent years as family fortunes have begun to wither and the wealthy now, for the most part, is highly productive. In other words, to get rich, they have to help other people [4. http://www.jstor.org...]. Taxing the rich would disincentivize their behavior. They would no longer become rich--or, they would contribute less to become rich--because taxes would be onerous. The economy grew in the 70s in spite of high tax rates, not because of them. Many cross-sectional studies have indicated lower marginal tax rates actually promote economic prosperity [5. http://www.econlib.org...]. A review of the economic research by the Tax Foundation notes how a significant wealth of studies suggests lower tax rates promote economic growth. The review notes, “the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.” [6. http://taxfoundation.org...]. Taxes constrain economic growth. Reducing tax rates, then, would help us. My opponent argues if tax rates were a factor, we would be experiencing a lot of growth currently. However, he forgets more factors than merely taxes affect economic growth. Past economic recoveries which use tax cuts actually have spurred economic growth. Currently, tax rates have stayed the same or increased. Other factors--spending, regulation, etc. all affect growth rates, too. This recovery, which has used stimulus packages, regulation, and health reform, has lengthened the recession, not shrunk it. This is proven by the fact only in this recession has job growth been so slow [7. http://1.bp.blogspot.com...]. The US also has the world’s highest corporate tax rate in the world at 35% [8. http://en.wikipedia.org...]. So, again, economic contraction is occurring in spite of low income taxes, not because of them. The weak growth is because of high corporate taxes, regulation, and spending. Not supply-side policies. == Summary == (1) Income inequality may or may not be increasing. As inequality has increased, the wealth of the poor has also increased. Between 2000 - 2010, inequality has actually decreased. (2) Inequality can be good and bad. If people are unequal because one group is more productive, it is good. This means inequality exists because of economic growth. If it is due to inheritance, it is bad as they are unjustly wealthy. The current inequality is ‘good’, meaning our economy is not damaged because of it. (3) Low tax rates on the rich spur economic growth.