Gap between rich and poor: What should it be?

For much of my life I've heard a the argument that the gap between the rich and the poor in the US (and around the world) is getting too large.

I've always wondered what that meant. Unless we accept a communist-like society (true communism, not totalitarian socialism), there will always be a gap. The questions becomes how big should that gap be.

The news has recently come out that the income gap is shrinking in the US for the first time in years. But not because of growth in the low- or medium-income households, but because of shrinking incomes at the top. But is that truly a good thing? In this case, no. I think even many people who make the argument about a smaller income gap would say that shrinking at the top without growing the bottom is not good for the nation, even if it would make some feel better.

Of course, the same argument could be made about growing the bottom at the expense of the top. Would rich Americans stand by and let government policy erode their wealth? Unlikely, and with money comes power and the ability to influence the political process more easily than other Americans. So it also might not be sustainable.

But perpetually growing the top may not be sustainable either. How long will the poor continue to watch the fat grow fatter without rising up as a political force to be reckoned with?

One writer even says that this shrinking top tier is bad for everyone, because they pay most of the income taxes. I know that many Americans believe that rich Americans get out of paying taxes, but on the whole, it's just not true. According to IRS estimates, percentage of income taxes coming from the top 5% of earners (which according to the US Census Bureau is households making more than $167,000 per year in 2005) is growing year over year. So they may be getting wealthier (until 2009), but they are also shouldering more and more of the tax burden.

Another interesting fact: a 1999 Harvard study indicated that a large gap between the rich and poor in a poor country retarded growth, while a large gap in developed countries encouraged total economic growth.

Again I ask the question (and not rhetorically), what should the gap be? How do we define it? It's easy to play the populist game (I'm looking at you Mr. Edwards) and tell poor people that all their problems are created by greedy corporations and individuals. But as a society, is this gap something we want to actively manage?

So next time you hear someone say the gap between rich and poor is too large, ask them that simple question: What should the gap be? Let me know if you get a good answer.