"...Take a simple thought experiment. Family A makes 50,000 a year. Family B makes 100,000 a year. Family C makes 500,000 a year. Further imagine that they are taxed as follows: Family A at 10%, Family B at 20%, and Family C at 30%.
That means that Family A takes home 40,000, Family B takes home 80,000, and family C takes home 350,000. You've got a roughly 9X difference between Family A and Family C after tax, and a roughly 10X difference pre-tax.
Now say that Family A's income goes up by 20%, Family B's income goes up by 100%, and Family C's goes up by 1000%.
Now family A has 55,000 pretax, and 49,500 post-tax. Family B has 120,000 pretax, and 96,000 after tax. And Family C has 5,000,000 pre-tax, and 3,500,000 after tax. So now Family C makes roughly 100 times as much as Family A pretax, and about 70 times as much as them post tax.
To get back to the original ratio, you'd have to raise Family C's tax rate to roughly 90%. If you merely wanted to let inequality double, we'd still have to take away $4 million worth of income, an effective tax rate of 80%--which implies a marginal rate even higher than 80%.
We can't do that, either politically or economically...
...Compare the consumption basket of any demographic group you'd care to between 1970 or now. There's no question that even poor families are better off materially...And I'm not talking about iPods; I'm talking about housing, health care, automobiles, telephones, and other things that we think of as basic accoutrements for a decent life."
meganmcardle.theatlantic.com
This is why helping family A to become rich is the best bet. Then they pay more taxes even while doing better. They can also aspire to be family C, giving them an incentive to do better.
Pulling family C down to least common denominator level does only one thing. It makes everyone interested in being the same. Taxes increase because there isn't as much in the pot, if family C comes down. Why should they try to get ahead?
Family C is the group that pays 65% of all taxes in the US. What exactly are we punishing them for again? The Audacity of Hope or something?
Posted by D | September 10, 2008 5:01 PM
meganmcardle.theatlantic.com
JKC wrote: Look at the money Stephen Schwartzman makes. Is he really going to be missing a couple million dollars?
Very probably, yes. Barrying a few winner-take-all sports stars and the like, persons in his possession rarely get there unless they become extremely good at noticing where "$2 million here, $2 million there" is actually going.
Now, would he work any less hard if we could find a way to take another $2 million from him by force? Possibly not, but I'm not Stephen Schwartzman, so it's hard to say. At some point the confiscation rate WILL cross the line of the marginal $2 million, and then persons like Stephen Schwartzman decide that retirement in Tuscany looks nice, and cease creating miles upon miles of economic activity that pay far more into the economy -- both in GDP, and in distributed corporate and personal income taxes -- that Stephen Schwartzman could possibly pay alone.
If you perhaps have some insight on where Stephen Schwartzman's marginal $2 million actually lies on the scale, and the best way to get everything below it, we can talk tax policy. If you don't, we can talk envy.
Posted by aMouseforallSeasons | September 10, 2008 5:52 PM
meganmcardle.theatlantic.com
What the simple thought experiment does demonstrate is that more inequality is not always an evil. Therefore it is incumbent on anyone who complains about rising inequality to show not just that inequality is rising, but that it is rising in a way that is objectionable. Not that I expect this any time soon.
Posted by Aaron Haspel | September 10, 2008 5:55 PM
meganmcardle.theatlantic.com
This is about class envy. Let's not pretend otherwise. This has nothing to do with practical economics.
Posted by Crusader | September 10, 2008 6:09 PM
meganmcardle.theatlantic.com
I think for the most part, liberals are concerned about the floor, not the ceiling
If that were the case, why would anyone, anywhere, every have cause to bring up "inequality," as such? If the problem is merely on of assuring a decent floor, then inequality is meaningless, only the floor matters. And thus even if inequality was increasing, as long as the floor held, there would be no cause for complaint.
Posted by Rob Lyman | September 10, 2008 6:28 PM
meganmcardle.theatlantic.com |
