I liked this article from the New York Times: Income Inequality: Too Big to Ignore
During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.
By contrast, during the last three decades the economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the top of the scale. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.
Yet many economists are reluctant to confront rising income inequality directly, saying that whether this trend is good or bad requires a value judgment that is best left to philosophers. But that disclaimer rings hollow. Economics, after all, was founded by moral philosophers, and links between the disciplines remain strong. So economists are well positioned to address this question, and the answer is very clear.
This part echoes what I've said here myself about the bar being raised for everyone when we're exposed to the spectacle of how the rich spend their ever-increasing wealth:
The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.It's to everyone's benefit to have a healthy middle class:
The middle-class squeeze has also reduced voters’ willingness to support even basic public services. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and cargo containers that enter our ports without scrutiny. And many Americans live in the shadow of poorly maintained dams that could collapse at any moment.
Ultimately, the article concludes that increasing income inequality doesn't benefit anyone-- the rich people who benefit from it aren't really happier, and everyone below them on the ladder isn't happier, and the costs to society affect us all. This doesn't mean that "income equality" is the goal, as those paranoid about communism and socialism may fear-- there will always be rich people and poor people, but when the division between them grows too out of proportion, we all suffer.
If you want to read more about the negative effects of income inequality, I recommend the book The Spirit Level: Why Greater Equality Makes Societies Stronger.