There has been much hysteria over the recent publication Capital in the 21st Century by French economist Thomas Picketty who argues that rising income inequality was the primary cause of the Great Depression and Great Recession. To close the income gap, liberal policies of raising the top marginal tax rate to 80 percent and raising the federal minimum wage have been proposed.
According to a recent commentary by Steve Moore and Richard Vedder, their comparison of state-level income inequality finds that there is a wider income gap in liberal states compared with conservative states. This evidence counters the policy prescriptions by liberals in favor of those by conservatives that include low taxes and stable regulations.
Here are their key findings:
According to 2012 Census Bureau data (the latest available figures), the District of Columbia, New York, Connecticut, Mississippi and Louisiana have the highest measure of income inequality of all the states; Wyoming, Alaska, Utah, Hawaii and New Hampshire have the lowest Gini coefficients. The three places that are most unequal-Washington, D.C., New York and Connecticut-are dominated by liberal policies and politicians. Four of the five states with the lowest Gini coefficients-Wyoming, Alaska, Utah and New Hampshire-are generally red states.
In the Northeast, the state with the lowest Gini coefficient is New Hampshire (.430), which has no income tax and a lower overall state tax burden than that of its much more liberal neighbors Massachusetts (Gini coefficient .480) and Vermont (.439). Texas is often regarded as an unregulated Wild West of winner-take-all-capitalism, while California is held up as the model of progressive government. Yet Texas has a lower Gini coefficient (.477) and a lower poverty rate (20.5%) than California (Gini coefficient .482, poverty rate 25.8%).
Do the 19 states with minimum wages above the $7.25 federal minimum have lower income inequality? Sorry, no. States with a super minimum wage like Connecticut ($8.70), California ($8), New York ($8) and Vermont ($8.73) have significantly wider gaps between rich and poor than those states that don’t.
Clearly, more government intrusion through higher tax rates or a higher minimum wage is not the answer. To the dismay of liberals, evidence continues to favor less government as the best policy approach to provide an environment that is conducive for economic prosperity and individual liberty, and for reducing income inequality.