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> I think it's also worth noting that the US already gets 70% of all its taxes from the top 10%

Yes, but they also own 70% of all the wealth[1], according to 2007 numbers (the percentage is almost certainly a little higher today), so that's perfectly proportional. If you own 70% of the wealth, you should pay 70% of the taxes.

http://www.businessinsider.com/15-charts-about-wealth-and-in...

Actually, since almost every country in the world thinks progressive income taxes are the right thing to do, then this is an argument supporting higher taxes on the wealthy.

Well said. To go a bit further, limits on income are likely to encourage people not to try truly hard or truly risky ventures. Paul Graham addresses this at http://paulgraham.com/gap.html

Yeah, because high tax rates always discourage entrepreneurship </sarcasm>

Norway - with one of the highest tax rates & comprehensive welfare states on the planet - has higher rates of entrepreneurship than the USA does. http://blogs.reuters.com/felix-salmon/2011/01/20/norway-entr...

If you look at international entrepreneur rates, its pretty clear that there is no relationship between income tax rates and start-up activity (that's not to say that specific tax policies don't make a difference). http://www.internationalentrepreneurship.com/total-entrepren...

For every argument about high tax discouraging risky ventures, there is a counter-argument that high safety nets reduce the risk of start ups.

Speaking of Norway, a recent TC article paints a different picture: http://techcrunch.com/2012/04/23/is-norway-leaving-its-tech-...

"limits on income are likely to encourage people not to try truly hard or truly risky ventures."

When people say things like this it reminds me of religious fundamentalists who claim that a world without belief in God would be some sort of anarchist murder-on-the-streets hellscape because people wouldn't have a reason to act morally or ethically anymore.

Not only is it incredibly pessimistic to believe either of these things, but you don't have to look far to see tons and tons of real-world examples that prove that the statement is completely ridiculous.

There's an important difference between wealth and income that PG does not go into.

Sure, I'll buy the idea that taxing income discourages work (though its impact is far more muted than some people would like to suggest).

However, I've not yet seen any argument that taxing wealth itself discourages work or wealth creation. If anything, taxing wealth keeps people from sitting on their assets and doing mere "wealth preservation".

If I were a Ramen-profitable startup entrepreneur, I'd much rather be taxed at 2% of my net wealth than at 30% (or even 15%) of my capital gains. Indeed, if I were anyone who planned on leveraging my capital to actively create wealth (c.f. Elon Musk) I should much prefer wealth taxes over capital gains taxes.

If we live in a meritocracy then anyone with a lot of wealth should be able to relatively easily average >6% ROI year-over-year.

Very few people have money as their prime motive.

>Though I support the idea that wealthy people should pay high taxes, perhaps even higher taxes than they do now, I think it's also worth noting that the US already gets 70% of all its taxes from the top 10%[1].

You do realize that if you make about $80K/year, you are already in the top 10% right? With that perspective, I feel that 70% of taxed income is absurdly low, the fact that 30% of all US tax dollars come from people making less than $80K/year is completely absurd to me.

Edit: According to your table, the number is actually: $112,124 I still think my point stands.

Your point doesn't stand. Read the rest of the data. Namely, notice that according to this data, the median AGI of the United States is $32,396/year.

So half the population is making less than $32k/year. Yes, the top 10% and the top half of the population are taking on almost all of the income-tax burden.... because they (we, in my case) have almost all the income.

There's nothing fair about demanding tax money from people who are just plain poor. You tax the rich, because rich people have money.

Now, we could talk about distributing the tax burden "fairly" across the rich and the middle class, but that assumes we have large, broad middle class. Which we don't: making a "middle-class salary" like, say, $66,193/year already puts you on the border of the top 25% of the country.

And then notice that to get from the top 25% to the top 10%, you have to make almost twice as much money. Top 10% to top 5% isn't that large of an increase, but top 5% to top 1% requires more than doubling your income.

So, to be clear:

To go from median to top 25%, you need to roughly double your income. To go from 75th percentile to 90th percentile, you need to almost double your income. To go from 95th percentile to 99th percentile, you need to more-than-double your income. We're operating a tax system designed for a bell-curve income distribution when what we actually have is a power-law income distribution.

FYI, when you look at individual median income instead of household, it's worse:

individual median income: $26,680/yr, single: $18,881/yr, married: $32,033/yr, divorced: $28,668/yr, widowed: $18,485/yr

Half the population is making less than $26,680.

"We're operating a tax system designed for a bell-curve income distribution when what we actually have is a power-law income distribution."

Well said. I'd upvote more than once if I could.

You say 70% of all taxes, but your link only discusses income taxes. That is horribly misleading.

I think it's also worth noting that the US already gets 70% of all its taxes from the top 10%

Why is that worth noting? That only further demonstrates the income inequality in the United States. Furthermore, wealth is far more important to take into account than income in any discussion of taxation or inequality.

Also, I have yet to hear anyone make an argument that sounds anything like "simply being rich is wrong."

"That only further demonstrates the income inequality in the United States. "

So is this the basic issue, then? That there's income inequality?

Because that's always going to be the case. Even in the most socialist nations, or even communist nations.

There is always a strong disparity of income and power. Always. And there always will be.

The problem is not the disparity, but how wide it is. Inequality in the US is currently so wide, it's absurd. It's widening in Europe as well, but not as fast and not as radically as in the US in the last 30 years. This is not healthy, it's polarizing society and eroding the social contract. The only way to effectively balance this trend is through higher taxation.

First of all, doesn't anyone see the correlation between increased government power (revenue/spending) and an increase in the income inequality gap? Look at a graph showing govt spending as a percentage of gdp vs the inequality gap.

Secondly, assuming that the "inequality gap" is necessarily a bad thing, which I don't think anyone has shown...

Why do you assume that higher taxation will decrease the income inequality gap?

If anything, higher taxation means more money (ie power) in the hands of the government. More power in the hands of the government just leads to more crony capitalism that concentrates even more money and power into fewer hands. Worse, those companies that then have access to all that money and power are the worst sorts of companies that don't even need to provide good products and services to consumers. Instead they get more bang for the buck by sucking tax dollars out of the system.

- Secondly, assuming that the "inequality gap" is necessarily a bad thing, which I don't think anyone has shown

Actually they have.

http://www.eurekalert.org/pub_releases/2012-05/osu-iil050812...

http://www.youtube.com/watch?v=cZ7LzE3u7Bw

In face increasing Gini coefficient for 0.01 increases mortality in state for 122% after 12 years. Yes, it is a bad thing in almost all recorded metrics.

- First of all, doesn't anyone see the correlation between increased government power (revenue/spending)

Nope. I think revenue spending isn't really good metric of government power and so far no one has proved that. You are free to test your hypothesis though. I'd wager that there is quite a bit of income inequality if your gov. revenue is low but they spend a lot of money.

> Actually they have.

I found the youtube to be more compelling than the OSU study. The OSU study contradicted lots of other studies that found nothing conclusive for nearly the same hypothesis. The author of the study managed to fit a curve that he was apparently looking for by allowing for enormous flexibility on the time axis. That's like finding pictures in clouds. You can see what you want to see if you look at something from enough angles. To be meaningful, you would need to apply those findings to lots of other data sets to see if you're just seeing what you want to see or if there's a real likelihood of a pattern. Science isn't finding one occurrence of something that you were looking for. Science is predicting where and how you'll find something and then having others find you're right over and over.

On the Youtube lecture: The statistics seem to show correlation, but causation? Is the inequality the cause of a lack of trust? Or is it the other way around? Furthermore, I saw lots of other correlations in the data they showed. Graph homogeneity of the population's ethnical background vs trust. Look at the states and countries that scored high trust. At a glance, they seemed to be the highly ethnically/religiously/culturally unified ones.

> Nope. I think revenue spending isn't really good metric of government power

Okay, what would you suggest... Watts?

> I'd wager that there is quite a bit of income inequality if your gov. revenue is low but they spend a lot of money.

Wait, your conjecture agrees with me. Spending is high and inequality is high. The gov. revenue is almost a non-factor in terms of government power. For the part of the curve where the currency hasn't been completely devalued because of over-borrowing and printing money, the amount the government spends is all that your really need to describe government power. Lack of revenue to back it up is just a ginormous credit card bill that no one seems to remember is out there.

That is not to say that the level of inequality is not greater than it was before or is elsewhere. The extent of inequality has grown in the states (http://www.motherjones.com/politics/2011/02/income-inequalit...) and compares unfavorably with other countries (http://en.wikipedia.org/wiki/List_of_countries_by_income_equ...).

With a first look at that chart, what it seems to truly reflect is the size of the middle class in each nation.

Wouldn't a better solution be to increase the size of the middle class rather than decrease the size of the upper class?

Also, among the western european nations and the US, I suspect a strong correlation between immigration rates and the data on the chart.

Problem is, a strong middle class usually rests on the strong provision and spread of certain goods. Some of these are private goods, like owning one's own house, but many of them are public goods: liveable environment, public transit, public schools, public universities, public health and health-care, etc.

Let me put it this way. It sounds like you don't want the entire government budget to rest on taxing one class and one class alone, the upper-class. That's a pretty virtuous and equitable thought to have, very fair to people who probably have much more than you.

Problem is, if income/wealth inequality is too severe, those guys are the only ones with money to contribute. So on some level, you need a certain level of income/wealth equality just to have multiple classes/brackets with enough excess income to contribute to the national welfare.

When the poor people are fat, it is safe to assume the middle class has money to contribute to running the country.

They're fat because they can't afford decent food and have to eat crap.

Assumptions don't get you anywhere.

They get fat by not having enough money for food?! Seriously?!

Do you think they spend so much on lottery tickets because the rich so unfairly keep them out of derivative trading?

Decent food. There are two main effects at work:

If all you can afford is ramen/bread/fast food, your body makes you overeat to get enough other nutrients (eg. vitamin C, B).

The second is that your insulin goes crazy with all those simple carbs and sugars (carbs are cheap, unlike protein, fish and vegetables, and get metabolised to glucose) so you get massive blood sugar swings. The low side of those makes you eat more and get fatter.

Lottery tickets are a strawman. Or, to quote a science fiction novel that I can't quite remember: "a tax on hope."

It's just as cheap to eat properly as it is to eat unhealthily. The difference is you need to actually put some effort in, rather than order a large Big Mac Meal.

Complex carbohydrates are cheap. Fat is cheap. Eating simple carbohydrates is not an economic choice.

Vitamins pills and vegetables are reasonably cheap. And anyway if deficiencies caused obesity, the rate would drop off dramatically over some threshold income.

Lotteries matter because that's where poor Americans spend about 10% of their income. Taxing the rich to destruction will not fix that.

They're not as cheap though, are they? Here are a couple of articles on poverty, obesity and cheap calories that you might find interesting:

http://www.guardian.co.uk/commentisfree/2011/dec/14/obesity-...

http://www.huffingtonpost.com/dr-mark-hyman/not-having-enoug...

10% of a poor person's income turns out to be about $25/week according to this article: http://www.dailymail.co.uk/news/article-2123448/Poorest-peop.... Hardly earth shattering or likely to lift them out of poverty if they somehow manage to save it.

Yes, in fact good food can be extremely cheap. Beans, eggs, and butter are dirt cheap. Canned vegetables are affordable if you buy for nutrition (i.e., not empty food like green beans).

Re. lottery spending, they are losing $12 a week! That is $600 a year! That could buy premium multivitamins, an extra several eggs a day, rather a lot of cheese, with money left over for the occassional meal out.

The problem of most poor Americans is not resources, it is the deployment of them.

Do you think they spend so much on lottery tickets because the rich so unfairly keep them out of derivative trading?

Hmm... the blatant gambling nature of both of those makes it a good analogy.

So is this the basic issue, then? That there's income inequality?

No, not at all. Who have you ever heard make such a claim?

The issue is the size of the inequality, its growth, and the fact that historical periods with less inequality and a stronger middle class seem to correlate with strong overall growth and prosperity.

I don't understand why the size of inequality matters. If I make $20,000 and Rich guy makes $2,000,000, how does me making $20,000 and him making $200,000,000 million make any difference?

Here is a Ted talk that prevents data about inequality: http://www.ted.com/talks/richard_wilkinson.html

There's another take on it here: http://www.quora.com/Economic-Inequality/How-is-income-inequ.... In, that link says that the degree of inequality matters in the us because in the us, the poor are desperately poor, and the rich are fantastically rich. In other words, if the poor had a pretty good standard of living and the rich were absurdly healthy, maybe that would be ok, but that's not the situation we have.

Because the money he spends raises the price of goods etc. Therefore your 20,000 becomes less money. This is easy too see in expensive cities. The same middle-class person would have to demand more money to live at the same standards as he/she would have elsewhere, simply because richness have driven up the prices.

So inflation is the primary concern?

How?

It makes no difference to you. It makes a great difference to the politician trying to get control of $198,000,000.

The blather about a strong middle class is misdirection. If the U.S. governing.g elite cared about the middle class, they would abolish the armies of bunny rabbit inspectors, No Child Left Behind functionaries, and so forth. The American middle class is being choked to death by regulators, not billionaires.

Because economic power and political power are strongly correlated, and always have been. It's the difference between the typical rich person having 100x more political power and influence in government than the average citizen, and the same wealthy individual having 10,000x more.

Massive gaping holes in income distribution are inherently anti-democratic. That might offend a person's capitalist sensibilities but it doesn't make it any less true.

It's worth noting when talking about how the wealthy should pay their "fair share." That discussion should at least consider what percent of all taxes they pay.

Also, I have some friends who grew up very poor and who believe pretty strongly that it's wrong to own an excessive amount of money while others go hungry. Though I think they make good points, that's not my view.