Income inequality leads to more people in jail, unemployment, underemployment, slower growth in demand...
Seriously? You can't possibly be saying people have been better off where the State declared equal incomes for all. We need to agree that we like the fact that people create their incomes, that people are different, and therefore people's incomes can vary.
What's the problem?
You are right, I am not saying that we would be better off if the state declared equal incomes for all. When I talk about income inequality I am talking about relative income inequality as it relates to the issues I just brought up. In essence you know income inequality is too great when you see problems associated with income inequality.
In order to understand income inequality as an economic issue you can compare different points in time. There has always been income inequality in the US but it has changed over time. At times economic growth has reached a broader range of people and at other times it has only reached some. What I find troubling is that we have had a trend over the last 3 to 4 decades where income inequality is growing. The 90's being an exception as demand for labor with skills in computer fields far outpaced supply. Once supply caught up the country returned to the broader economic trends that existed before.
Or simply put I would take the income inequality present in the 90's or the 80's or the 70's. That if income inequality continues to grow the problems associated with it will grow and those problems will present not only harm to our economy but a threat to Democracy itself. It leads to desperation and is the death of Democracy.