There is much that can be done with our tax code to better support the middle class if we look in the right places.
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 they see raising the taxes and using the federal bureaucracy to somehow redistribute those higher taxes.
If we seek to help the middle class (those that actually pay income taxes), how can it be efficient to merely raise taxes and lose those taxes in the federal bureaucracy?
Retirement investment earnings from any qualified retirement plan are taxed as ordinary income. Why not tax these distributions at the lower of income tax or investment rates? This will enhance the income for middle income Americans age 59-1/2 and older, lower the dependence on Social Security and cut out the federal bureaucracy in the process.
Delay any 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 them 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 less than $100,000 (indexed).
Who do these benefits go to? Well they mostly go to middle and upper middle income Americans who have worked and saved for a lifetime … what a concept 😳
How do we pay for this? First, most of it is a delay in paying taxes, not avoiding them and second, does anyone doubt there is enough waste in government spending to pay for a lot of things?
I find it amazing that despite the trillions spent on various government support and transfer programs, the poverty rate is little changed while fifty years later so many people see doing more of the same as the answer to inequality. Why is that?
None of this is the real answer given nearly half of Americans pay no federal income taxes, the focus should be on creating an economy, opportunity and the skills so that all Americans earn enough to pay income taxes. Solve inequality from the bottom up, not the top down.