Wednesday, December 19, 2007

Pick a conclusion - any conclusion...

Consider the following table:

As we argue over inequality, perceptions rule, while facts can be disregarded. Partly I believe this is because we are hard-wired to notice and resent inequality, and lord knows the media sure like to point out what's going on with the rich folk.

But after noticing how the top is slurping up the income and paying the taxes, their grasp on the wealth of this nation is pretty stable.


Granted, the upper tier owns a lot of America - but it would seem they always have.

But one lesson I draw from this is we don't know how much tax the rich can pay without losing significant wealth share, so why not have a very progressive (soak-the-rich) tax scheme?

The answer may be at some point the creation of wealth stalls as the reward to generate more at the top disappears. Stable shares of a stagnant pile of wealth could be worse than a diminishing share of growing wealth for the 99-per-centers.

None of this is intuitive or particularly clear even after scrutiny, which is why debate rages over economic equality.

One interesting note: without the estate tax, we would not have a way to measure wealth shares, as was done in the above study. Eliminating the "death tax" would be a double bonus for the rich.


From Virginia said...

How about if we stopped taxing income, i.e. productivity, and went instead to a consumption tax (sales tax) with a rebate on the first $30-40K spent? That should boost our savings and investment rate.

John Phipps said...


I have always liked the idea of consumption taxes, but looking at the EU and their VAT, it doesn't seem to make much difference at least in wealth distribution.

I'll try to post more on this phenomenon.

Still I agree with moving from income to consumption taxing, but there is an enormous bureaucracy/industry based on minimizing income taxes who would fight any change to the death.

Anonymous said...

A sales tax equally shares the burden meaning the lower incomes levels are paying more in taxes (on a percent) than the higher incomes. I too once thought of a sales tax being fair, but not to replace income tax. Where a slaes tax makes the most sernse is in school fuding. Do awway with property taxes, or at elast reduce them and then use a slaes tax to supplement.

Mr. Phipps, please post this link. Mark Cuban maikes the most sense I have heard in awhile.

From Virginia said...

I hope we don't view taxes primarily as a means of re-distributing wealth, but rather how should we most efficiently fund essential government services (farm subsidies don't meet the definition) without knocking over other dominoes in the economy.