1 - Income indeed is inequal, but it hasn't been getting more unequal recently (and by recently I'm not just talking about since Obama became president). Consumption is less unequal. Total wealth is more unequal than income or consumption, but its become less unequal both recently (since the recession started), since the 80s, since the 50s, and over the last century.
blog.american.com
2 - Income inequality doesn't matter much because
A - It isn't a negative thing. Poverty is a negative thing. Rich people getting richer is not.
B - Over time the non-rich have also gotten richer.
C - It is exaggerated by those who make it an issue. They look at say household wages, without considering that wages aren't the only income, and that households have gotten smaller, and while ignoring that patterns in consumption and wealth inequality (see #1 above), because it doesn't support their story, except perhaps for cherry picked years.
D - Because of income mobility. Whether or not there is “growing evidence of less intergenerational economic mobility in the United States than in many other rich industrialized countries”, there still is a lot if intergenerational economic mobility, and also intragenerational economic mobility (the same person has changing, often increasing, income and wealth over time).
3 - Income inequality is mostly not a result of tax policy.
Also to the extent it is
A - Higher marginal tax rates decrease mobility to the highest levels, increasing the problem.
B - The US has a more progressive tax structure than most of Europe.
4 - Taxing the rich will indeed have a negative effect on economic growth, and on the efficient use of resources. That's esp. true when your taxing investment income, and it seems that all the class warriors on the left have a particular problem with capital gains rates not being high.
5 - Increasing taxes on the extremely rich wouldn't raise much money. There isn't enough of them. And they already face high tax rates. They have more ability to defer realizing income, and to avoid or evade taxation, and to the extent you actually can pull more out of them, which is limited, you reduce investment. You might even get a net loss of tax income.
Even (ridiculously) assuming that they would simply pay more, and not change anything (still invest just as much, make no extra effort to avoid taxation, etc.) you still don't get enough money to make any serious impact on the deficit.
If only the richest 400 families, whose average income in 2008 was an astounding $270 million actually paid the statutory rate of 39 percent (revived as of next January 1st)
And if only pink unicorns descended from the sky and wrote large checks to the treasury, we might have a smaller deficit. Something only slightly less likely.
And even if you could get them to actually pay that much they would be paying that much of a smaller base (at least smaller than it otherwise would have been, perhaps even directly smaller). Raise the capital gains tax to 39 percent, and people simply put off realizing the gains, they have less income to tax. Meanwhile you reduce investment in the US, chasing it overseas or just suppressing it.
an additional $500 billion would be raised over 10 years, putting a substantial dent in the projected deficit.
$50bil a year is very far from putting a substantial dent in the deficit. |
