Inequality masks a concern for poverty. Then why do we not simply address the problem of poverty? Why do we cloak it with concern for inequality?

If five of my associates with similar incomes sat at a table and Bill Gates sat down with us, the inequality at that table just soared. Do any of us have a problem with that?

The problem with conflating the two is twofold. It assumes a zero-sum game that the wealthy got wealthy at the expense of others. Secondly, but related, it assumes that the problem can be solved with redistribution. To be blunt the math does not work. You could redistribute most of the wealth or income for the super wealthy and it would change the lower quintiles very little. If you took a dynamic approach it would probably make them worse off over time.

Inequality is hard to define and even harder to measure. If we are measuring income do we include transfer payments and taxes; do we measure households or individuals; do we include benefits. Much of the noise can be easily filtered if we measure the inequality in consumption power, and when we do the multiple between the top and bottom quintiles drops very sharply.

Poverty is much harder to define but it has many causes and we should be cautious not to consider the poor as an amorphous single entity. There are many ways to address poverty that have nothing to do with inequality.

We already have a very progressive tax system. If we wish to raise the taxes on the rich, I would prefer to limit deductions, such as the SALT limit on the 2017 tax bill. Muni bonds could pay a tax at a lower rate that preserves the advantage. Taxing wealth (as opposed to income)  is fraught with problems due to wide variety of types of wealth often in illiquid form. Most of our wealth is not sitting in a pile of cash in the bank like Scrooge McDuck. Imagine the expense of valuing illiquid forms such as art, jewelry, collectibles, farmland etc.

By removing more credits and deductions we can lower rates. We should strive to reduce the gap between the statutory and actual rates paid. If we raise the rates on income too high we incentive costly avoidance schemes and increase the risk premium demanded for investment, and slowing the growth of the economy.

The prioritization of inequality over poverty is attributed to envy in some cases but more often to a violation of some sense of fairness. But just as we should care not the think of the poor as a single entity, we should be even more cautious not to group the rich or even the super-rich as a single faceless group. Some of the super wealthy have benefited us all, and some have abused the system to their advantage while providing little value. We should distinguish between the rent seekers and the rich who have improved our lives.

We would find better solutions to problems of poverty if we did not assume it was contingent on reducing some definition of inequality.

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