Inequality, One of the Causes

Inequality has been in the news for the last 3000 years. I know recently it seems like you can’t pick up a paper or turn on the radio without hearing something about inequality. Especially since Piketty wrote a book called Capital, in which he blamed the ability of the wealthy to earn superior returns on their investments compared to what the average man can earn on his wages. The real problem and real cause of inequality is not federal taxes, state taxes or the lack of good jobs, it is payroll taxes. If you take the average person and say they start working age 15 at the local supermarket or fast food restaurant, and retired at age 67, during that time they worked for 52 years and let’s say their average income over those 52 years was $75,000. Payroll taxes that they would have contributed are about 20% per paycheck which is composed mainly of Social Security, Medicare, Unemployment, Family Leave Act and other plans that provide little if any benefit to the average citizen, and in many cases cost more to administer than any benefits they pay out. The interesting thing is that these payroll taxes were taxed again by the federal and state government.  Yes, payroll taxes that you do not receive are taxed. When they retire at age 67 the government gives them $500,000 paid out over 15 or 20 years, but they tax this again, so the net present value of that is about $300,000. Now if the government rather than taking this money and doing whatever they do with it, put it in a market rate low cost investment when this couple retire they would have $6.7 million in their account. The difference between the $300,000 and the $6,700,000 is a big cause of inequality.