In many ways, it could be argued that we’re living in a new Victorian age. They had similar enormous income disparities; the rich became grossly, obscenely rich and there were fewer and fewer of them; while the poor were desperately, hopelessly poor and there were more and more. The comfortable middle-class shriveled. Think Dickens. Think of the O.Henry stories of the shop-girls struggling to live on two dollars a week while the department store owners wallowed in wealth. It was an age of the same type of extremes–the ostentatious displays of wealth in the ornate mansions, while outside the expensive gates, the poor shivered and starved in the dirty streets. There are so many similarities in tone; the moralizing editorials about the problem of the poor and dramatic increases in crime; the fascination with the rich (who were the media attraction equivalent to today’s movie and music stars); the same kind of over-the-top, egregious, and ultimately tasteless displays of wealth.
I would argue that this excessive disparity between income is unhealthy for a society. A society with a large middle class is simply a nicer, more comfortable, more pleasant and enjoyable society to live in. The extreme example of income disparity is a feudal society, where you have the king and a few nobles ensconced in the castle, and everyone else is a serf, scrabbling in the dirt. Such societies are relatively unpleasant to live in, even if you’re in the castle. They also tend to stagnate. Insular as they are, I would argue that even the super-rich at the top of the L-curve are actually better off if they have a few less millions and in return, they get to live in a background society that is better-educated and has less crime.
I would also argue the claim that taxing inheritance provides a major disincentive for the rich to accumulate wealth is specious. Have you actually known any multi-millionaires, up close and personal? It so happens that I have. Trust me, these guys would still accumulate wealth no matter how high the inheritance tax was raised. They’d still have it in their lifetimes to spend and enjoy as they will, and they like that. A lot. It’s a far bigger motivation for them than ultimately leaving it to the relatives. Plus, many of them will find a way to hide good chunks of it, no matter what scheme is implemented. It’s all a matter of degree. Let them have fairly huge inheritances of 10, 20, 30, 50 million, whatever. But when you get into the billions, that kind of money can’t really be encompassed by the human brain, nor even reasonably spent nor enjoyed by one person or one family. It gets into the realm of the abstract. Spend the money on education, some cleaner air and water, and buy everyone a better, more comfortable society to live in. I would also consider an income tax increase that targets only that immense vertical spike from the L-curve. Raise taxes on that super-rich 1% of the population, and lower taxes for everybody else. I would bet that includes everyone reading this; it includes the “ordinary” millionaires. There’s that hoary argument used in defense of the rich, that the wealthiest 10% pay about 50% of the taxes. Since they have 90% of the wealth, all that really means is that they are undertaxed, and the poor and ever-shrinking middle-class are paying more than their fair share. That top 1% that controls 40% to 50% of the nation’s wealth is simply not paying their fair share of taxes. Reform would ultimately result in a larger middle-class, fewer poor, more people becoming what we consider to be “rich”, and maybe a small decrease in the ranks of those scary super uber-rich.
This is a complex topic, and it would take at least several books to address completely. I would also just like to point out that we do not have perfect capitalistic markets, and a tax on these extreme amounts of accumulated wealth is one way of leveling that disparity. Take our friend Bill Gates. If you know something about the history of Microsoft, and all the nasty, under-handed, anti-competitive tactics that company successfully used, you also know the sales and pricing history of its operating system looks a lot more like a monopoly than a free market curve. Get a few economists together, (from disparate schools; even Keynesians and Friedmanites should be able to come to agreements on basic math) have them draw up the curves for what profits and sales would have been like under a true free market; compare that to the monopolistic market profits that actually resulted; tax hell out of the difference and put the money where it best alleviates the wrong without becoming too much of a logistical nightmare; say, equipping schools with updated computers and software.
Another point is the fact that many of the super-rich accumulated that mind-boggling wealth by dumping a huge chunk of the true costs on society, in the forms of dirty air, dirty water, toxic waste dumps, razed old-growth forests, and so on. Taxing that wealth is just a way of getting some of those real costs back to the people who were originally forced to pay them, and far more true to the spirit of a truly free capitalistic market (where producers pay the actual costs of production) than otherwise.
Maybe Pareto’s Law is not unreasonable. Maybe not. The problem is, we’ve reached a point where the actual numbers are far more skewed than that 80/20 ratio. Furthermore, the provided examples of Pareto’s Law ignore the above issues of real costs (that do have dollar values) of producing wealth (pollution, collusion, monopolies etc.) being shoved off onto others, by those who accumulate that wealth.
I noticed that some wealth distribution figures from the 1980’s were posted. As the original poster pointed out, these numbers have become far more skewed. As the OP pointed out, it is now estimated that the richest 1% have from 40% to 50% of the nation’s wealth. That’s just too much. Knock it back down to at least 30%. The rich will still be incredibly, grossly rich; but it will make a huge difference to the poor and the middle class, and the “ordinary” millionaire, for that matter.
) chop taxes back to adjusted 1950’s equivalent levels. People who are working full-time but still struggling to get by, and who can’t even afford health insurance, shouldn’t be paying any income taxes at all. That’s how the income tax structure was originally set up, until inflation came along and pushed everyone into the tax brackets once reserved for the rich.