The populist sentiment in the US is rising and there is a clamor for something to be done. The top 300,000 people earn as much as the bottom 50,000,000. The capital gains and estate tax policies are tending to favor multi-generational transfers of wealth which leads to a semi-permanent plutocratic class.
Let's pretend that all this discontent gets turned into policy and wealth is better equalized. What would the US look like afterward?
We have a good example to study. This was the deliberate policy during most of the 20th Century to get rid of the British landed gentry and associated inherited class status. Positions in Parliament were passed down from one generation to another as an expected right.
This was accomplished by imposing strict death duties which forced landed families to sell off their holding over time. In addition the strong labor movement encouraged income tax policies which captured the "excess" earnings of very high earners using a steeply progressive income tax.
By the 1970's this had worked pretty well and while there still is an hereditary ruling class many of them have little more than their family names left. A common feature of literature and film of the time was to have a story about an old family being forced to sell the estate to some boorish American.
The effect on the British democracy was positive. There were no more rotten boroughs and the way was opened for talented people to enter politics and get elected. Many of them brought new ideas with them. There was also a parallel effect in the business world, where many entrepreneurs could start up business and get funding on the basis of ideas and not be ham strung by the old boy network that resisted innovation previously.
There has been some backsliding since Thatcher, but we'll leave that aside and turn to the US.
The rise of inequality in the US has had two pernicious effects. The more commonly observed one is the undue influence of money in politics. Increasingly it is only wealthy people who can afford to run for higher office, or if they are not personally wealthy they need to be backed by a small group of wealthy backers. The interests of this group do not tend to coincide with those of the working and middle classes.
The second effect has been to push the cost of "middle class" necessities out of the reach of many. The most obvious example has been in the gentrification of old neighborhoods. These used to be the places in the city where civil servants, teachers and those working in similar professions lived. As these closer-in spots become coveted by the wealthier classes the prices rise and the middle class is priced out of the neighborhood. In Manhattan there is almost no middle class housing anymore. There are the million dollar apartments and the public housing and old tenements for the poor. The middle class now has to commute to work. NYC has a program to help new teachers afford housing since many potential new hires are unwilling to commit to a long commute.
Those with a good education are less likely, as a result, to go into public service or work for non-profits and more likely to take jobs which allow them to live the, now more expensive, "middle class" lifestyle.
As I said, let's imagine that the wealth of the top tenth of a percent or so has been recaptured. Well, the billionaires in the rest of the world haven't been affected by the US policies. So we should see the same trends as in the UK. The most desirable homes, the most expensive baubles and the highest priced services will be bought up by foreigners. The conditions that keep the next tier lower in the money race won't change either. Taking away the wealth of the 1000 richest families in Manhattan won't open up hundreds of affordable apartments.
There should be one positive effect, however, and this is the same one that was observed in the UK. The country should become more democratic in practice. The wealthy in the US fund self-serving "think-tanks" and bend universities to support their views via donations. They provide direct support to politicians and indirect support through the companies they control. They have a vested interest in seeing the present expensive electoral process maintained. Firstly, it acts like a filter and weeds out working class and leftists candidates. Secondly, it provides a nice stream of income to the big media companies and their fellows in PR, consulting, polling, etc. who manage the campaigns. This generation's robber barons are no longer in steel or railroads, but are in media or media support. Making elections cheaper cuts into their bottom line and reduces their influence.
The recent flap over Murdoch is a good example. Most of his detractors talk less about the size of his empire, but rather about how he uses it for political aims.
So my prediction is that there will be a modest re-equalization of wealth in the near future. The estate tax will be preserved with a higher deductible and there may be some rescaling of the progressivity of the tax rate and/or the treatment of capital gains. But this won't fix the fundamental economic problems. These are caused by the US pursuing the wrong priorities. This is unlikely to change. Most people favor a muscular foreign policy backed by a huge military establishment. They fail to connect this spending with the deficits in infrastructure, education, and other vital services. Putting $50 billion into the pot each year captured from the top won't be much when set besides the nearly $500 billion that militarism consumes. There is also little prospect of the media landscape changing. The web and the blogosphere are encouraging developments, but have yet to demonstrate the ability to affect policy priorities.
So yes to neo-populism, but don't expect it to be a panacea.