If I were King
This is just for fun. I don't know anything about economics or taxation, but, having always had a utopian bent (which I view now with extreme suspicion, but which will out, from time to time) I can't help every once in a while but try to think about what I'd do if I were king. I do wish there was a larger conversation going on in America about just what we want the country to be and how best to get there.
It is not entirely reassuring that, according to economists, our collective well-being depends upon our individual foolishness. Maybe it should be reassuring -- since individual foolishness is never in short supply -- but there's a fundamental madness revealed by the fact that the sudden realization that we are living beyond our means, and our attempt to respond to that rationally by reducing our spending, should imperil the economy. If our economic health depends on an ever-increasing indiscriminate consumer frenzy, you kinda have to wonder whether it's an economy that's worth keeping healthy at all. I was some sort of socialist in my younger days, but always halfheartedly, since I was also ardently anti-centralist and libertarian. I could never quite make the ends of the laces match up, between the two. I'm not a socialist now.
(By the way, calling Obama a socialist is, of course, absurd: taking the highest income tax level from the 36% it's been under George Bush back up to the 39% it was before does not pitch us headlong into a different economic system. On the larger scale it really doesn't count as a change at all.)
Capitalism has, among other systemic flaws, the tendency to suck wealth from the bottom and accumulate it at the top. There's nothing mysterious about this. All other things being equal, the winner of a poker game is the guy who starts with the most money, because he can afford to lose more often and still stay in the game. Add to that basic fact all the advantages of growing up rich -- the good schools, the good medical care, the varied experience: you wind up with people who are going to be a little better at making money, and a lot better at keeping it. So over time the money just keeps trickling up. There aren't many respectable economists, I think, that would dispute this. You don't have to regard rich people as sinister and predatory. It's just the systemic effect, over time, of market capitalism. The so-called "progressive" income tax was introduced in America, in 1913, explicitly to counter this tendency. If that's socialism, then America has been socialist for nearly a hundred years, now.
There are various methods for pushing the wealth back down towards the bottom. The simplest solution, and the one I favor, is just to tax the wealthy and give the money to the poor. If I ran the zoo, I'd slap a really hefty transfer & inheritance tax on absurdly large estates -- say, estates of over five million dollars or so -- and give the money to the poor. A guaranteed national income, or maybe a "negative tax," as Milton Friedman called it. And then, rather than establishing huge elaborate government programs, we could just let the market do the rest. I don't really understand the repugnance to just giving money to poor people. I know, some of them will get drunk with it. Some rich people get drunk too. It's too bad; but no one seems to think that taking away their money is the proper response to it. A lot more poor people, if you gave them that extra money, would buy health insurance for their kids. Some will object that the poor will all stop working and give up trying to better their circumstances, because the government is giving them $5,000 a year, or whatever. This strikes me as just silly. You don't live that comfortably on $5,000 a year. And people are greedy. They want more. A few people are hopeless as workers, that's true; but that's nothing new. It wasn't caused by welfare and and it won't be fixed by capitalism.
I'm not fond of taxing income. We want people to work, don't we? Why penalize them for it? These are the people who are producing the country's wealth. Why do we punish them so heavily, and reward parasites that simply swap around stocks and bonds and other pieces of paper? And why do we just leave inherited wealth sitting there? When I was idly living off my inherited money, I paid maybe a couple hundred dollars in taxes per year, tops: when I began working, I suddenly paid tens of thousands every year. That struck me then, and strikes me now, as absurd. We should tax assets, not incomes. If we did that mostly through inheritance taxes, we could essentially never tax people on anything they themselves earned. I should think people would like that. And my heart does not bleed for the billionaire who is allowed to pass on only five million dollars tax-free to his kids. It just doesn't.