Tax policy and inequality in America (Part 1 of 2)

Studying political science at what might be the most liberal academic institution north of Berkley has given me a lot of opportunities to observe, listen to, and digest a large volume of hyper-liberal ideology. Unfortunately, I have had far less opportunity to respond, as my silence is frequently critical to my grades and even, I suspect, my health.
One of the classes I am finishing up has been focused entirely on the issue of inequality in the United States. I decided to share with anyone who cares to read my thoughts on tax policy and inequality in America. This is the first of what will be a two part series. Your thoughts and comments are welcome. :)
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An Introduction to Inequality
A great academic focus of many in today’s intellectual class is on the distribution of wealth and government policies of redistribution. The literature on the issue of inequality is staggering in its breadth and depth. It is not the purpose of this brief essay – were it even possible in any space of pen and page – to settle or presume to answer in any definitive way the myriad of questions about the extent of inequality in America and what the government might do about it. Rather, this essay will focus specifically on the role of government tax policy and its correlation with inequality in American society. What is the historical relationship between tax policy and inequality across all social strata, and how should these historical relationships influence future tax policy? More importantly, what is the philosophical rationale of government redistribution of wealth policies? No essay this breif could be expected to fully answer such questions, but herein I will make the case for a reduction in government involvement in wealth redistribution policies as the preferable method to increase liberty, economic growth, and societal happiness, these being preferred to the costs associated with the government imposition of a more egalitarian society.

Inequality’s Inherency
Thomas Piketty and Emmanuel Saez teamed up in 2003 for The Quarterly Journal of Economics to document the top shares of wages from 1913 to 1998 in the United States. Their work shows that as early as 1913 (and others have shown it to be substantially true even earlier), the wealthiest percentile of capital owners was miles ahead of the middle class and poor, and were still, even after experiencing large and permanent losses during the Great Depression and World War II. They argue that “steep progressive income and estate taxation may have prevented large fortunes from fully recovering” after World War II, but that the gap in equality was still vast, and did grow in the post-war years. Theirs is far from the first study outlining inequality of income or of taxation, but it does make the important case that “long-run inequality trends are the consequence of real economic change, and… a short-run perspective might… attribute improperly some of these trends to fiscal manipulation.” In other words, though government policy is influential, one must carefully consider that inequality is too complex of a social condition as to be contained or controlled by “fiscal manipulation” (Piketty and Saez, 2006).
Other authors and researchers have gone to great lengths to demonstrate a rising inequality in America and its (debatably) harmful affects on American society (see Bartels, 2008; Frank, 2007), arguing for aggressive government intervention in pursuit of a more egalitarian society. Still others (Iyer et al, 2008) have dug into the issues of tax rate progressivity and its affect (or lack thereof) on real inequality, the hidden “excess burden” of high tax rates (Carroll, 2009), the necessity of high employment and union involvement in eradicating inequality (Kenworthy, 2009), and the affect of “changes in labor supply, savings, and portfolio decisions as a result of revisions in the tax code” (Karoly, 1996; Sanyal et al, 2000).
In spite of the vast quantities of time, effort, and money poured into researching inequality and what can be done about it, it strikes this author as rather odd that the basic assumption by seemingly every academic is that the government should do something about inequality, without really making the case that because action is possible, that action is inherently good. For that matter, the basic assumption that inequality is harmful is scarcely argued at all, save for the work of Robert Frank in his book “Falling Behind” (Frank, 2007).
It is my contention that the eradication of inequality by government redistribution of wealth is a fruitless and foolish endeavor. As such, we ought to look to history as a guide on to whether the societal welfare can be maximized without the obtuse intrusion of government on economic affairs and personal liberty and property.