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The solution is pretty simple, implement a more progressive tax system. We had such a tax system between 1940 and 1980, it was slowly flatted into the current system and the outcome was all very predictable.
Between 1940 and 1980 we had top marginal rates of 70~90%, yet today there is an uproar (ironically, by people that aren't even close to being effected) from trying to shift the marginal rate from 35% to 39% on income above $250k.
The masses in this country have been so indoctrinated into economic gibberish that there is little hope that policies will change.
So...be on the top. The view is much better.
State, local property, sales and other taxes were non-existent or very low during those years. This adds a great deal of tax burden.
Record revenue poured in after Reagan lowered top tier tax rates because fewer people hid their income.
Let's personalize this.
Let's assume that you earn $150,000 a year. You have adjusted your life to that income level.
Now, most people fall in the $50-$60,000 annual income range. They adjust their lives around that income level.
Now the majority say's "hey, look at him, he has more disposable income than us. Let's take more of his."
Is it "fair" that you pay much more because you earn more?
A high income inequality is not a good thing for a democracy. You will start seeing the disadvantaged population vote for policies that are going to be in direct conflict with those in power. For example, politicians who favor tariffs and stopping outsourcing/globalization or favor income redistribution are going to start gaining votes. This will be in direct conflict with those at the top. Since, the disadvantaged greatly outnumber those in power, it is likely those who favor the policies I mentioned above will be voted in.
The elite will not have a lot of options so many of them will resort to bribes/corruption to ensure that these politicians do not impede their progress or threaten their status. In the most extreme case, an authoritarian government might come to power and ensure that the elite's dominance is not threatened or that the disadvantaged population get their share of the elite's wealth through income redistribution.
This has often been the case in many countries especially in the developing world. High income inequality is often the reason why a lot of countries are authoritarian (such as China and Russia) or have seriously corrupt democracies (such as Mexico and Brazil). If I were to speculate which route America will take in the future, I think it will be the corrupt illiberal democracy route. Many would argue that America has already gone down this path.
So unless we return to the "Robin Hood" tax system, we'll become a third world country?
I don't think anyone is actually denying that. The question is what will happen if the growing inequality lingers and from what history has shown it isn't very pretty. The vast majority of countries with a high Gini index are authoritarian (Singapore and China) or seriously corrupt democracies (Mexico and South Africa).
I'd be curious to know what you think the country will be like with even more income inequality. What's your scenario?
I'm not going to speak for alphamale, but I honestly don't imagine much in the way of political ramifications. Politicians will always be swayed by money and special interests, that's nothing new or startling. But if anything, they'll have an even harder time getting away with it now that the news is becoming more and more transparent. Regardless of income inequality, the vast majority of voters will continue to be middle or lower class; when a politician is under increasing media attention, and his every action is posted on the internet for all to see, he's not going to alienate the vast majority of his constituents by overly favoring the wealthy.
That's why in the past several elections, presidential candidates have made such a big deal about being gung-ho for the middle class.
State, local property, sales and other taxes were non-existent or very low during those years. This adds a great deal of tax burden.
No they weren't. But I'd be fine with a more progressive tax system in exchange for lower sales taxes. Ideally, we'd just have income taxes on high incomes, a modest capital gains tax and a high property tax.
Quote:
Originally Posted by alphamale
revenue poured in after Reagan lowered top tier tax rates because fewer people hid their income.
Its funny when myths are believed as facts. Adjusted for inflation, revenue growth during Reagan was lower than both before and after Reagan. Revenue growth was more than double under Clinton vs Reagan. Look it up.
Quote:
Originally Posted by alphamale
Is it "fair" that you pay much more because you earn more?
Yep, its certainly fair. The household making $150k would only pay a higher rate on income over $60k.
I wouldn't suggest raising taxes on middle-class households though, hence taxes at $150k should be increased.
I'm curious to know what you think will come of wealth redistribution.
Not Hollytree, but I'll take a stab at this one too.
Scenario 1: High paying jobs are typically very stressful and typically require lots of hours and lots of education. For the most part, people are only willing to do these high-stress jobs because they know that they'll be handsomely compensated. If we take away the majority of their compensation, then they have no incentive to work anymore.
This could lead to some scary situations like: "Why go to medical school if I'll be barely making enough money to cover my loans?" Do we really want to scare people away from essential professional positions?
Scenario 2: Deflation. Keep in mind that the guys at the top of the food chain who set the market prices are wealthy. They could very easily manipulate their prices so that the value of a dollar goes up. The result? What looks like a "smaller gap" between rich and poor would really be no different from before. The numbers would change, but each group's position in society wouldn't.
The CEOs and surgeons who are working up to 60 hour work weeks in highly demanding fields are obviously going to be making a lot more money than the person who slides by with a low skilled and undemanding job. .
You are focusing on labor rates, but that is the wrong focus. The focus should be on capital and the rents the wealthy receive for their capital.
The wealthy aren't wealthy because they have high incomes, they are wealthy because they own large amounts of capital. Your average doctor is not rich, he is middle-class to upper-middle class and leads a more or less normal life. A doctor, like most people, is deriving his/her income from his/her labor.
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