The Great Divergence

[kandrathe]

I assume this is all hypothetical? I know that it's fun to stomp all over Jimmy the Peanut, but I don't think real incomes dropped by a whole 10 or 20% during his term.

In fact, they rose, by about 5%.

Yes.

We are not creating a dragon's hoard, nor are we in the age of mercantilism. Net worth, while important, is less important than income. The ability to produce more is what drives economies, not the quantity of stuff possessed.

I was talking about taxing people fairly.

For just Federal taxes using close to the current brackets rounded a bit for ease of the example (marginal rates for 0-10 is .1, 10-34 is .15, 34-82 is .25, 82-172 is .28, 172-373 is .33, and >373 is .35).

Person A inherits a 500 million dollar trust fund from daddy set up in the Bahama's, and draws $75K every year for 10 years and pays 10% on the first $9999, 15% on $10K - $34K, and 25% on the rest. So pays $14850 per year, or 19.8% of their gross income per year, total of $148,500 of the $750,000.

Person B - is an entrepreneur, and starts a business and earns $0, $0, $0, $0, $10K, $20K, $40K, $90K, $180K, $360K earning a total of $700K over the same ten years. They would pay zero for four years, $1000, $2500, $6100, $17090, $42690, and $102090 respectively, for a total of $171,470 or an overall marginal rate of 24.5% of their income.

Person A took no risks, has more wealth, was less "productive", earned $50K more over the 10 years, and paid a 4.7% lower tax rate. Person B is the one we want to encourage, and is the one who will hire employees, and grow the economy, yet we penalize productivity. If you taxed Person A, based on wealth, they'd pay $1M per year, or $10M over the ten years if they maintained at least a 2% rate of return on their trust fund. Person B would have paid $14,000 over the 10 years assuming they had no debts and all their earnings were conserved as wealth (unlikely).