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Government contributes to income inequality

| Thursday, February 6, 2014

In his State of the Union address, President Obama vowed to tackle income inequality and declining economic mobility. If this venture goes as well as health care reform, working Americans had better watch out. Obama plans to use bigger government, more taxes and more regulation to push his agenda, but economic evidence, moral arguments, and good ol’ common sense suggest that reducing the size and scope of the federal government will actually be more beneficial.

Initially, it might seem counterintuitive that less government would be helpful, but the government itself takes many actions that create economic inequality. One of the major causes of this government-driven economic inequality is the welfare system. Welfare is supposed to provide assistance to the poor so they may live reasonably comfortable lives, but in many cases, it acts as a trap to keep people in poverty. If you’re poor, you should have a natural desire to climb the economic ladder to make more money, but free money from the government can erode this desire. Why work harder for more money if you can just get a check from the government? I’m well aware that not everyone has this mindset, but enough people do to make it a serious problem. We must ask ourselves if these policies are truly helping the poor or if they’re just a way of appeasing our ethical obligations by making us think we’re helping.

Corporate welfare, where the government subsidizes large companies, is another cause of inequality. Once again, this is an example of our corrupt government actively contributing to the income gap because it involves taking money from middle-income Americans and giving it to the politically connected elite. Additionally, there are loopholes in the tax code that allow many of the top one percent of earners to pay less in taxes than those with medium incomes. I’m not trying to engage in class warfare here, I don’t think we should tax the rich into oblivion. The real issue is that everyone else is paying too much.

In all fairness, Obama isn’t the only president to oversee a government with these policies. However, he has repeatedly called to reduce income inequality while promoting government policies that create it. He has a long history of handing out corporate subsidies to his political friends, one of his crowning moments being his $535 million gift to Solyndra, a mismanaged, low-quality green jobs company that ended up going bankrupt. He brags about increasing the reach of government welfare programs (spending on them has increased 30 percent under Obama) when, in reality, he may be trapping people in poverty. The success of welfare programs should be measured by the number of people who leave them, not the number of people added. His policies that increase the income gap point to something I’ve been saying for a long time: Barack Obama is a colossal hypocrite.

I should note that there is a second cause of economic inequality I’m going to call natural inequality. This is inequality arising from the free market system and the inherent differences of individual people. Everyone has a different work ethic, ability level and aptitude. It is the reason why some people are billionaires and others have never worked a job in their life. Although it inevitably leads to a great income inequality, I strongly believe a free market system is good for society because it rewards people for success and discourages failure.

Unfortunately, with the bailouts, stimulus packages, Obamacare, suggested tax increases for being rich, and now the proposed $10.10 minimum wage, this system is in great danger. All of these laws add more government while taking away freedom in the marketplace. Raising the minimum wage is aimed at reducing economic inequality, but it won’t really do much. A higher minimum wage would mean some companies have to let workers go, increasing unemployment. It also creates increased operating costs, which should lead to higher prices. In addition, I believe the minimum wage is morally backwards. Rather than emphasizing that minimum-wage jobs should be temporary jobs until one can advance, raising the minimum wage will encourage people to stay at a job where they make a little bit of money, but still not enough to live comfortably. Like welfare, it’s a way of trapping people in low-income jobs and discouraging upward mobility.

After hearing me explain why current policy is bad, you probably wonder what alternatives I will suggest we pursue to reduce income inequality. The very first thing we should do is stop the government from actively creating a larger income gap. I’m not saying we need to get rid of welfare; I’m simply claiming that government policies should be more focused on encouraging people to take care of themselves. We should also stop absurd subsidies and start writing an equitable tax code. As for the natural inequality, I think we have a moral imperative to let the free market operate with little interference. Some people will end up rich and some won’t, but any action the government takes to prevent this would have to take wealth from the rich and redistribute it to the poor. This sounds a lot like failed European socialism, and a little too much like the desires of our current president.

Raymond Michuda is a sophomore in the College of Engineering. He can be contacted at rmichuda@nd.edu
The views expressed in this column are those of the author and not necessarily those of The Observer.

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