Is Income Inequality a Cause of Poverty in America?


In December 2013, President Obama called rising income inequality “the defining challenge of our time.”

The Economist reports that the share of the national income going to the top 1 percent of Americans has doubled since 1980 (from 10 percent to 20 percent). The share of national income earned by the top .01 percent has grown from 1 percent to nearly 5 percent. And the top 1 percent own around 40 percent of the nation’s wealth.

Should Christians be concerned about the rising income gap between the highest and lowest earners in the United States? Are the rich making too much money? Is income inequality an inherent wrong that must be set right?

What Does Scripture Say About Wealth?

Although Paul denounces trust in riches (1 Tim. 6:17) and love of money (1 Tim. 6:10), Paul never condemns the mere possession of worldly goods. During his missionary journeys, Paul depended on the benevolence of those who had resources to share. In fact, it is the very possession of wealth that enables us to obey God’s command to be charitable. “God will generously provide all you need,” Paul writes. “Then you will have everything you need and plenty left over to share with others” (2 Corinthians 9:8).

Paul’s teaching on wealth mirrors that of Jesus, who in the Sermon on the Mount tells his followers to refrain from storing up treasures on earth, for it is impossible to serve both God and money. The rich young ruler exemplifies the wrong approach toward material possessions. By refusing to relinquish his wealth in order to follow Jesus, he exalted money above God and proved, in the words of Bernard of Clariveaux, that “he did not own his possessions; they owned him.”

While Scripture does not prohibit great wealth, Scripture does demand that we use our wealth to serve God and to display an active love for the least among us. From beginning to end, Scripture is permeated with a preferential option for the poor. Providing for the lowly has been one of the distinguishing traits of God’s people since the Israelites entered the Promised Land (Deuteronomy 15:7-8).

Jesus frequently associated with the downtrodden, tending to their spiritual and physical needs. Subsequently, charity became a distinctly Christian virtue, leading John, the beloved disciple, to write, “If someone has enough money to live well and sees a brother or sister in need but shows no compassion — how can God’s love be in that person?” (1 John 3:17).

If a large — and expanding — gap between the rich and the poor means that the least among us will inevitably have a more difficult time moving up the social ladder, then Christians are justified in endorsing policies that attempt to decrease current levels of income inequality, for, by doing so, Christians will be faithfully combating poverty and its causes.

Does Greater Income Inequality Actually Decrease Upward Mobility?

According to President Obama, high income inequality is a pernicious evil because “greater inequality is associated with less mobility between generations.” As a result, “[a] dangerous and growing inequality and lack of upward mobility … has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.”

If income inequality is truly a problem preventing people from escaping poverty, then the obvious solution is for the government to redistribute wealth, so that the supposed excess wealth that falls into the hands of the rich is given to the poor, who seem not to be benefiting from economic growth. However, if income inequality is not the problem, then government redistribution of wealth is not the solution.

As we will see, income inequality is neither causing nor exacerbating poverty, which is the precise reason why the government’s efforts to redistribute wealth have done little to alleviate poverty or improve upward mobility in this country. In fact, a recent House Budget Committee report states: “Today, the poverty rate is stuck at 15 percent — the highest in a generation. … Federal programs are not only failing to address the problem. They are also in some significant respects making it worse.”

Income Inequality Is Not the Problem

Income inequality does not reduce upward mobility: A recent study by a group of Harvard economists led by Raj Chetty directly contradicts the President’s claim that greater income inequality hampers economic mobility.  “[T]he top 1 percent share [of wealth] is uncorrelated with relative mobility,” Chetty writes. Reviewing the work of his colleagues, economist Lawrence F. Katz admits that, despite the growth in inequality, “it is not true that mobility itself is getting lower.” Ultimately, children today have the same likelihood of moving to a higher income bracket as they did 50 years ago.

Economic growth is not a zero-sum game: When the rich get richer, the poor do not necessarily get poorer, and the evidence shows that recent economic growth has made everyone better off. A Congressional Budget Office report from 2011 showed that income grew by 275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent, and 18 percent for the bottom 20 percent. In other words, Peter does not have to rob Paul in order to get rich. When wealth is created, both Peter and Paul tend to benefit, even though those benefits do not accrue equally.

Percentiles are not people: In the midst of their populist frenzy, the Occupy Wall Street Movement attempted to demonize the top 1 percent, forgetting, however, that the top 1 percent of earners is not static over time. A study published in the National Tax Journal showed that “more than half of the households in the top 1 percent in 2005 were not there in 1996.” Over time, people routinely move from one income quintile to another.

Thomas Sowell writes, “[B]etween 1996 and 2005, the income of individuals who had been in the bottom 20 percent of income-tax filers in 1996 had increased by 91 percent by 2005, and the income of those individuals who were in the top 1 percent in 1996 had fallen by 26 percent. … Whatever the relationship between one income bracket and another, that is not necessarily the relationship between people, because people are moving from one bracket to another as time goes on” (Basic Economics, p. 220)

Wealth Redistribution Is Not the Solution

As part of his effort to lower income inequality and assist those in the lowest income brackets, President Obama has suggested hiking the federal minimum wage, increasing tax rates on the highest earners, and instituting various federal programs. But while these methods of government intervention will redistribute wealth, they will have no significant effect on upward mobility or poverty alleviation.

A higher minimum wage won’t help poor workers: The Congressional Budget Office predicts that a $10.10 minimum wage would result in the reduction of about 500,000 jobs. The income for each of those 500,000 people would fall from $7.25 per hour to the true minimum wage: zero.

An increase in the federal minimum wage will not reduce poverty because over half of all employees earning minimum wage are teenagers or young adults who are not heads of a household. In actuality, 66 percent of minimum-wage workers live in families with incomes above the poverty line. Studies indicate that over 50 percent of Americans start their careers making close to minimum wage, but quickly begin earning more as they gain additional experience.

We can’t tax the rich enough to eradicate poverty: In National Review, Michael Barone notes, “If the government had simply confiscated every dollar from those reporting more than $1 million taxable income in 2008, it would not have gotten the $1.3 trillion needed to close the current federal budget deficit.” Rev. Robert Sirico, President of the Acton Institute reveals the chimera of taxing the rich in order to equalize wealth: “If we confiscated all of the wealth of the world’s richest 1 percent — every last penny — we could distribute about $13,000 to every person on the planet — one time. … [H]ow much good would [that] do for the average poor person in the long term?”

The War on Poverty has failed: Fifty years ago, President Lyndon Johnson began the War on Poverty, which was initially designed to help people achieve financial independence. Whereas the poverty rate was 17.3 percent in 1965, it was 15 percent in 2012. Trillions of dollars in government spending and efforts at redistribution have hardly improved the situation of the most destitute. Today, an estimated 21.8 percent of children live below the poverty line.

Shifting Our Attention From Income Inequality to Upward Mobility

Christians should resist the temptation to harbor animosity toward high-earners for two reasons:

1) It perpetuates an envious disposition that directs our eyes toward our neighbor’s wealth rather than the genuine needs of the poor among us. In his Summa Theologica, Thomas Aquinas describes envy in the following manner: “[A] man may be sad at the goods of another inasmuch as that other surpasses him in good things; and this is properly envy, and is always evil, because it is grief over that which is a matter of rejoicing, namely, our neighbor’s good.”

2) It prevents us from rejoicing over the goods we do have. According to a Pew report on economic mobility, “the vast majority of Americans have higher family incomes than their parents did.” Additionally, as the Heritage Foundation indicates, a majority of poor households have refrigerators, televisions, air conditioning, microwaves, televisions, cars, and cellular phones, which signals an amazing rise in the standard of living in this country over the last several decades. Gary Burtless, an economist from the Brookings Institution, writes that both the poor and the middle class got richer between 1979 and 2010.

Christians are concerned about the well-being of the poor, which is exactly why we must turn our attention away from income inequality (a false problem) and the redistribution of wealth (a false solution) and toward the real causes of poverty and the best means by which to ease the plight of the poor.

What Are the Real Causes of Poverty?

By fueling envy and invoking an illusory class struggle, focus on growing income inequality excuses government intervention and distracts us from the real issue — helping the poor climb out of poverty.

Poverty is a real issue, and, although upward mobility hasn’t declined in the last 50 years, it is still too difficult for people to advance to a higher income bracket during their lifetimes. Pew reports that “43 percent of Americans raised in the bottom quintile remain stuck in the bottom as adults. … [And] only 4 percent of those raised in the bottom quintile make it all the way to the top as adults.” According to the National Center for Children in Poverty, 32.3 million kids (45 percent) live in low-income families.

In their widely discussed report on economic opportunity, Raj Chetty and his fellow economists noted that the greatest threats to upward mobility — that is, the core elements preventing people from escaping poverty — are family breakdown, low religiosity, low civic engagement, lack of education, and unemployment.

How Can We Alleviate Poverty?

Moses Maimonides, a 12th-century rabbi, encouraged his listeners to “anticipate charity by preventing poverty.” Instead of lambasting high earners, we should focus our attention on the plight of the poor and discover the means by which we can improve the quality of living for those who are struggling to survive on their current level of income.

Christians can help increase upward mobility by:

Promoting Strong Families

Growing up in a two-parent home is the surest way to avoid poverty. Unfortunately, the number of homes in which kids are raised by a single mother has doubled since the 1980s. Raj Chetty writes, “[T]he strongest predictors of upward mobility are measures of family structure such as the fraction of single parents in the area.” Simply growing up in a community with more single-parent families has a detrimental impact on children raised in two-parent homes.

Promoting Faith

Again, Raj Chetty finds that “high upward-mobility areas tend to have higher fractions of religious individuals and greater participation in local civic organizations.” A robust faith and active church involvement thrusts people into community life, helping them to build solidarity and inculcate the virtues necessary for human flourishing. The discipline and values that tend to guide religious believers has a positive impact on their personal, social, and economic well-being. Additionally, charitable endeavors promoted by churches are designed to alleviate both spiritual and material poverty.

Promoting Education

The American Enterprise Institute published a study linking high-school dropout rates with low upward mobility. Raj Chetty writes that the highest mobility occurs when children are educated at schools with high test scores, low dropout rates, and small class sizes. Increased school choice will allow children from low-income neighborhoods to attend better schools and associate with better peer groups, which also contributes to upward mobility.

According to the Pew Economic Mobility Project, “47 percent of those born in the bottom quintile will remain there if they are unable to complete college. Contrast that with their peers who do manage to complete college — only 10 percent will remain in the bottom quintile. … Without a job, it is difficult to get out of poverty. And without education, it is difficult to find a job. The lack of affordable education — and of effective training programs — hinders skill formation, which is critical to social mobility.”

Promoting Work

In his book Defending the Free Market, Rev. Robert Sirico writes that jobs are the best anti-poverty program. “[T]he past 200 years have seen the astounding rise of billions of the world’s population out of abject poverty. … What rescued hundreds of millions of people from the direst poverty? Simple, humdrum business.” Continuing, Sirico notes, “[B]etween 1800 and 1950 the proportion of the world’s population living in dire poverty halved, and from 1950 to 1980 it halved again. … Economic freedom and business enterprise lift people out of poverty; the absence of freedom and enterprise traps people in poverty” (p. 48,49).

Economists at the Brookings Institution put it rather simply: If you work full-time, have a high school education, and wait until you are married to have children, you have a 2 percent chance of being poor. Each of these elements — family, faith, education, and work — combine to give people the tools, the incentives, and the support to rise out of poverty, to improve their standard of living, and, finally being freed from financial hardship, to pursue spiritual goods. By actively promoting and pursuing these goods — these foundational elements of human flourishing that respect human dignity and offer purpose and direction — we can help prevent poverty before it begins. In so doing, we will fulfill one of our most primary Christian duties: to care for the least among us.