Does the US Need Wealth Redistrbution?

In the US, the top 20% of wealthy individuals own about 85% of the wealth, according to a recent report by Edward Wolff of New York University. The bottom 40% own very near 0%. This is the widest gap between rich and poor since just before the Great Depression.

"A gap this pronounced raises the politically divisive question of whether there is a need for wealth redistribution in the United States," says Michael I. Norton, a professor at Harvard Business School, who conducted a survey of 5,000 people on the subject with Duke economics professor Dan Ariely. "This central question underlies such hot-button issues as whether the Bush tax cuts should be allowed to expire and whether the government should provide more assistance to the poor."

To set the stage for this debate, Norton and Ariley surveyed 5,000 Americans. When asked to estimate the current wealth inequality ratio, respondents guessed that the top 20% of Americans owned 60% of the wealth, and the bottom 40% owned 10% -- not even close to reality.

And when they were asked what the ideal wealth distribution should be, they responded that the top 20% should own just over 30% of the wealth and the bottom 40% should own about 25% -- about the wealth spread found in Sweden. The results remained fairly constant across the conservative-to-liberal political spectrum, and among rich and poor people, according to the researchers.

"To achieve the ideal spelled out by those surveyed, about 50% of the total wealth in the United States would have to be taken from the top 20% and distributed to the remaining 80%," according to Norton in an Op-Ed in the Los Angeles Times.

Which raises an interesting, and incredibly complex, question. Do these sentiments also mean people would be supportive of massive tax overhauls to redistribute wealth from rich to poor? As Wall Street Journal commentator Robert Frank observed recently:

"The only real solution that's ever offered for 'solving' inequality is taxes. And while it's easy for Americans to say they like the ideal of Sweden, they may not be quite so excited about Sweden's taxes."

What do you think we should we do with these research findings? What is your ideal ratio of wealth distribution?

(Photo by Flickr user ItzaFineDay, CC 2.0)