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Discussion #5:

1. There are two competing views as to the source of economic inequality in the United States. A synthesis of those views leads to the implied conclusion that we should look for an optimal degree of inequality. On the one hand we need to preserve the discipline and incentives of the market based system we live in; on the other hand, we need to know that some wealth and income is being maintained as protected by higher income individuals. If the emphasis of this class were different we could debate the pros and cons of each argument from the guise of the Utilitarian and Rawlsian Social Contract points of view and have a great time doing so. Here the question is different. What are the costs to society of having a less than optimal degree of income inequality – in particular, what are the costs and benefits to society of wealth staying concentrated among the wealthy?
2. After reading the chapter please go to https://www.cbo.gov/publication/49440 and download the EXCEL data workbook 49440-Distribution-Of-Income-Taxes_supplemental_0_0_-1.xlsx.
   1. Please construct two tables, one showing the average Federal tax rate, by income quintile, for the years 1979, 1989, 1999, 2011 and a second showing the Shares of Federal Taxes For all Households by Before-Tax income Group for the same years.

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