How to Reduce Income Inequality

Jun 2014
64,262
39,036
Cleveland, Ohio
Income inequality is an extreme concentration of wealth or income in the hands of a small percentage of a population. It has been described as the gap between the richest and the rest.

The U.S. has the highest level of income inequality of any industrialized nation, according to Inequality.org.

Extreme, growing income (and wealth) distribution is bad for America because, beyond a point (which economists can measure and which the U.S. passed in the 1980's), income inequality SLOWS economic growth.

It is also unjust, if that matters to you.

How has income inequality affected the U.S. in the past?

 
Jun 2014
64,262
39,036
Cleveland, Ohio
So, for argument's sake, say we all agree our government should reduce income inequality.

In brief, tax the wealthiest more and use those proceeds to fund programs that benefit the 99%. Universal health care. Student loan forgiveness. Free childcare. Free paid parental leave. Free college tuition. Etc.

The impact we hope to see is that the 1% continue to be richer than us, but not as rich as they were. The rest of us use the new programs to migrate upwards and our children do likewise, until the middle class is as large as possible.

And the number of poor Americans is as small as possible.

If we agree these are desirable outcomes for ALL of us, how can they be achieved?
 

Ian Jeffrey

Council Hall
Mar 2013
78,142
47,926
Vulcan, down the street from Darth Vader
So, for argument's sake, say we all agree our government should reduce income inequality.
Naturally, of course, we do not all agree. There are many - including on this board - who believe that people who inherit billions of dollars (for example) are entitled to it, even though their passive investment income is substantially higher than the mean for those who have to work for a living.
 
Mar 2019
1,340
1,220
God's Country
Income inequality is an extreme concentration of wealth or income in the hands of a small percentage of a population. It has been described as the gap between the richest and the rest.

The U.S. has the highest level of income inequality of any industrialized nation, according to Inequality.org.

Extreme, growing income (and wealth) distribution is bad for America because, beyond a point (which economists can measure and which the U.S. passed in the 1980's), income inequality SLOWS economic growth.

It is also unjust, if that matters to you.

How has income inequality affected the U.S. in the past?

I agree that income inequality can become an issue. Government interventions globally have not created solutions to the problem. The best thing that can be done is for our Central Bank (The Federal Reserve) to implement a strong dollar monetary policy. This means no more balance sheet expansion and money printing. They also need to get interest rates higher to incentivize saving instead of low interest rates that incentivize borrowing. The Fed has been doing the wrong thing for over 20 years now, so I don't expect for them to change. This means income inequality gap will continue to widen.
 
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StanStill

Former Staff
Dec 2013
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Probably everyone has already seen this, but it bears repeating.

I'm starting to think that—because of how insignificant the amount raised is—all income under 100,000/per year should be tax free and that loss in revenue should be distributed to the income over $100,000. Even a flat tax would be fine with me with this method. Your first 100k is tax free, and every dollar over that is taxed at a flat tax rate of (?)35%. If you make 100,000, you owe nothing. If you make $200,000 you owe $35,000. If you make 1.1m you owe $350,000.

At least that's an idea that has been rolling around in my head. Numbers subject to change.
 
Jun 2014
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Cleveland, Ohio
Warren's proposal is a wealth tax. It has bern (and still is) used in other countries and has had the desired affect, more or less. Big arguments against it would be cost of administration and enforcement, valuation problems and avoidance.

More importantly, the economic impact of a wealth tax is irrational, judging by the experiences of other nations.

"Irrational" in that people will choose how to spend and invest based on that tax and not based on "real" economic factors.

E.g., a 1% tax rate that includes all stocks will reduce the investment in stocks by the rich. If the shares are worth $100 and produce a 5% rate of return, or $5/income, the tax will be $1.05. The EFFECTIVE rate of return will be reduced to 3.95%.
 
Jun 2014
64,262
39,036
Cleveland, Ohio
Bernie's proposal is an increase in the inheritance tax. In many ways, this is ideal because the items are taxed only when death occurs. Estates are already heavily court-supervised and many valuation issues do not arise.

However, we have an inheritance tax now. Supposedly, it captures about 50% of all wealth above $5 million. Problem is, there are so many loopholes, most rich people's estates pay nothing or close to nothing.

We could close the loopholes and the tax might function as intended (for a few years), but the immediate impact would be to destroy the philanthropic community in the U.S.

Which might be an acceptable cost, or possibly could be mitigated.
 
Last edited:
Nov 2013
11,905
12,042
NY

Probably everyone has already seen this, but it bears repeating.

I'm starting to think that—because of how insignificant the amount raised is—all income under 100,000/per year should be tax free and that loss in revenue should be distributed to the income over $100,000. Even a flat tax would be fine with me with this method. Your first 100k is tax free, and every dollar over that is taxed at a flat tax rate of (?)35%. If you make 100,000, you owe nothing. If you make $200,000 you owe $35,000. If you make 1.1m you owe $350,000.

At least that's an idea that has been rolling around in my head. Numbers subject to change.
Sounds like nice idea... yet in reality, this would mean you would try to raise all needed tax revenue from 30% of all US households only.

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Jun 2014
64,262
39,036
Cleveland, Ohio
The other proposal is to tax all income, including capital, at MUCH more progressive rates acrosd a MUCH broader spectrum of income.

This has the challenges any income tax has: enforcement, avoidance, etc.

It does nothing to capture wealth held in non-income producing assets, such as land.

But it has the longest, most studied economic impact. The apparatus to collect it already exists. It has historical evidence to support the claim that it will work.
 
Jun 2014
64,262
39,036
Cleveland, Ohio
I agree that income inequality can become an issue. Government interventions globally have not created solutions to the problem. The best thing that can be done is for our Central Bank (The Federal Reserve) to implement a strong dollar monetary policy. This means no more balance sheet expansion and money printing. They also need to get interest rates higher to incentivize saving instead of low interest rates that incentivize borrowing. The Fed has been doing the wrong thing for over 20 years now, so I don't expect for them to change. This means income inequality gap will continue to widen.
The government's power to control interest rates, etc. cannot reduce income inequality without significant new taxes.

No amount of investing, saving, etc. alone lifts the poor. At best, the numbers of working poor would increase.

More profitable businesses do not automatically pay higher wages.