Proponents of the inequality theory say that most of the growing wealth of the 1% is in the form of investment earnings (capital gains and dividends) which are taxed lower than ordinary income. To solve that problem they see raising the taxes and using the federal bureaucracy to somehow redistribute those higher taxes.
On the other hand, earnings on retirement investments from any qualified retirement plan are taxed as ordinary income.
Here is a thought:
Why not tax these distributions (at least the earnings on these saving above any employer match) at the lower of income tax or investment income rates? This will enhance the income for retired Americans , AND assure it goes to those who need it, lesson the dependence on Social Security and cut out the federal bureaucracy in the process.
In addition, we should delay taxation of Social Security benefits until the full amount paid in payroll taxes by the beneficiary has been received in benefits. This too will give many Americans a helping hand in their early years of retirement and lower pressure on them to withdraw from savings thus giving investments more time to grow in value. In addition, the required minimum distribution (RMD) from retirement plans should be eliminated for anyone with a gross income at age 70 less than $100,000 (indexed).
Who do these benefits go to? Well they mostly go to middle-income Americans who have worked and saved for a lifetime … what a concept 😳
How do we pay for this? Does anyone doubt there is enough waste in government spending to pay for a lot of things? Besides, these are relatively minor changes that ultimately favorably impact millions of Americans.
I find it amazing that despite the trillions spent on various government support and transfer programs, the poverty rate is little changed while at the same time fifty years later so many people see doing more of the same as the answer to inequality. Why is that? I suspect because the populist focus is on bringing down the top rather than raising up the bottom … and middle.