From David Henderson:
1. High-income households are not likely to consist of one person earning a very high income (as is often assumed); rather, they are likely to have two or more income earners:
2. Census data show a large difference in full-time work and in the number of weeks worked in a year.
Less than one-third of families in the lowest quintile had a head of household working full-time; in the top quintile, more than three-fourths of families did.
3. Workers tend to start out at a low income, increase their earnings with experience, and then have lower incomes late in their careers or in retirement. For example, peak earnings typically occur in the 35-to-54 age group. However:
Many redistribution advocates fail to see that raising marginal tax rates on higher incomes would, in fact, increase measured inequality. The reason is that an increase in the marginal tax rate would discourage work. This reduction in the supply of labor would drive up the before-tax pay of the highest earners. All other things equal, their after-tax pay would decrease and after-tax inequality would fall — but (before-tax) measured inequality would rise.
The income distribution should be judged not by how equal it is, but by how people obtained what they have. Inequality due to government-granted privileges, in the form of subsidies, quotas and so forth, is arbitrary and unfair, while inequality due to income earned through work and investment is just.