Debunking the top three myths about income inequality
In his State of the Union Address on Tuesday night, President Barack Obama is expected to take sharp aim at wealth inequality.
He'll propose a hike in the minimum wage, extended unemployment benefits, and more funding for education and skills improvement.
He is also likely to contribute to several persistent myths about the increasing gap between the rich and everyone else.
There is no question that income inequality in America is high compared with other countries as well as with the three decades in the U.S. after World War II. And a consensus is growing among business leaders, politicians and even conservatives that more must be done to help those at the bottom better adapt to a more global, technology-driven world.
(Read more: The overreaction of the 1 percent)
But as the country wrestles with one of the most fundamental issues of our time, three key myths beg to be corrected.
MYTH 1—Inequality is rising to the highest levels ever. The most common argument used is that the top 1 percent is taking more of the national income pie than ever before. In fact, the group's share of income (including their capital gains) is lower than it was in 2007, when it hit 23.5 percent. In 2012, the most recent period measured, it was 22.46 percent.
The share of income going to the top is also less than 1 percent above where it was in 2000 (21.52 percent). The years 2000 and 2007 were good economically, but few people were complaining about inequality then because overall employment was higher.
That doesn't mean this level of income inequality is low or acceptable—over the past three decades, the share of income going to the top 1 percent has more than tripled. But that it's at levels similar to those in 2000 and 2007 means that the attention given is not consistent with the actual income gap.
(Read more: Work hard, get rich—Americans don't buy it)
MYTH 2—Helping the poor will solve inequality. There are plenty of reasons to provide more help to America's poor and marginalized, underemployed, undereducated or underpaid. But even if all the president's efforts are successful, they won't substantially change inequality as measured by income or wealth statistics.
Statistical inequality has been driven almost entirely by the soaring fortunes of a small number of winners at the top of the economy, rather than by the declining fortunes of those at the bottom. According to the Congressional Budget Office, real after-tax incomes for the bottom 20 percent grew 49 percent between 1979 and 2010, while incomes for the top 1 percent grew by 201 percent over the same period.
Further, the growth at the top actually was driven by the top .01 percent, which saw their average annual income grow more than six times, to $17.1 million from $2.7 million. More importantly, the vast majority of that increase was driven by stock market gains—and most were one-time events such as a stock sale or grant. That leads to our third myth.
MYTH 3—The rich are a permanent club choking off opportunity for the rest. Of those who made $1 million or more, half were millionaire earners for only one year between 1999 and 2007. Only 6 percent were millionaire earners for the whole period.
(Read more: Op-ed: Rich vs. poor: Wage stagnation is a myth)
Among the top 400 earners in America, 73 percent made the 400 list for only one year between 1992 and 2009. Only 15 percent made it more than two years.
As the IRS said in a June 2012 analysis of the dynamics of high earners, "The data reveal a mostly changing group of taxpayers over time."
(Read more: Born here? You already struck it rich)
One of the most comprehensive studies on upward mobility—the odds of moving up or down the income ladder—shows that mobility hasn't appreciably changed over the past 20 years even as inequality grew and fluctuated.
The study, by Raj Chetty, points out that mobility in the U.S. is still a fundamental problem. But mobility has not gotten worse among children in the middle fifth of the income scale—about 20 percent reached the top fifth.
So yes, the president and Congress should do more to improve inequality of opportunity in the U.S. But inequality of incomes and wealth are unlikely to drop unless there's a major stock market crash. And that won't make anyone richer.
—By CNBC's Robert Frank. Follow him on Twitter