Tax the Rich. Tax them more.
Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman
Yeah, I'm the taxman
Should five percent appear too small
Be thankful I don't take it all." Taxman" George Harrison of The Beatles, 1968
The USA has a progressive income tax. High income people pay a higher percentage of their income than do lower income people. It redistributes wealth. Guest Post author Michael Wallace says it should be more progressive and redistribute more wealth.
Mitt Romney famously said 47% of Americans were "takers." He was referring to the reality that almost half of Americans essentially pay zero federal income tax. They pay sales taxes, Social Security taxes, utility taxes, fees, tolls, and more, but not much in federal income tax. Only 3% of federal income taxes paid are paid by the bottom half of Americans.
Michael Wallace's Guest Post proposes that the current tax rates become more progressive, with incomes drawn from the wealthiest and given to the poorest. Marginal tax rates used to be much higher than now.
Postwar America was a time of relative equality between rich and poor. There was an ethic of "we are all in this together" coming out of the war experience, when the entire country was pressed into service. The lives of wealthy people depended on the military service of young men and women in uniform and on factory floors. An enlisted man in Europe, North Africa, or on a ship in the Pacific wasn't a "taker." By 1980 Ronald Reagan put voice to the new ethic: The government is the problem and income redistribution is theft from hard-working Americans.
Michael Wallace is a college classmate. After college Wallace joined the Peace Corps and then returned to obtain a Ph.D. from the JFK School of Government. He retired in 2018 and enjoys daily walks with his dog Layla.
Michael and Layla have visited my farm and vineyard twice. Layla runs around, sniffing for ground squirrel scent, and digs holes.
Guest Post by Michael Wallace
My previous post (June 24) was about the persistent inequality of income in the United States and redressing this problem by redistributing income after it is acquired. That post recommended the amounts of income that could be redistributed with great absolute benefit to the poorest 40% (the two lowest quintiles) of the population and little relative cost to the richest 40% (the two upper quintiles). That post recommended what to do, not how to do it.
The “how” is easy. We have an income tax system, and every year some people receive refunds from that system, often because they have paid more tax than they owe. Redistributing income can become one of the objectives of the income tax system, in addition to the goal of providing the money that funds government activities. Government services funded by the income tax would simply expand to include a more equitable distribution of income.
However, redistribution should not be an annual activity, taking place only once a year. People who receive large lump-sum payments are likely to spend them quickly and come up short of funds for other needs soon thereafter. It would be much better to redistribute this money each month, like a paycheck or Social Security payment. This additional redistribution could simply be an expansion of the current Social Security system.
On the contribution side, the Internal Revenue Service already has a quarterly tax payment mechanism that could be expanded to include these payments into the redistribution system. The table below shows 2021 mean US annual incomes by quintile, revised incomes after redistribution, and the total and monthly redistribution amounts.
The numbers in the table above show the mean values for the households in each quintile. In practice, household values would fall on a smooth upward-sloping curve so the income for a household at the top of one quintile would be little different from the income for a household at the bottom of the next quintile above.
I think this redistribution would make us a better and happier society.
“I think this redistribution would make us a better and happier society.”
“We all do better when we all do better.”
Paul Wellstone
The 4th Quintile makes insufficient income to subsidize anyone. The Top Quintile should do all the subsidizing! Maybe the Top Quintile should start at $500,000.