Efforts by the Obama administration and the Democrats to produce a viable policy for dealing with the deficit and the problem of increasing inequality are hampered by both ideas of "being realistic" and a lack of long term perspective. If we consider that the changes in the tax code in favor of the richest Americans since Eisenhower has produced the extreme wealth of the 1%, then the problem we face is how to reverse the trend. This is different from simply increasing the basic tax to 35% or 38% as the 1% has amassed huge fortunes that generate tremendous earnings every day. Criticism that increasing their tax to minimal levels like34% will have no effect on the deficit miss the point. We have to deal with this massive inequality that exists. There are the more mundane reasons, like the finding by Michael Kumhof and Romain Ranciere ("Unequal = indebted" Finance and Development, Sept 2011:25-27.) that higher income inequality in developed countries is associated with higher domestic and foreign indebtedness. The fact, demonstrated by Emmanuel Saez and Thomas Piketty, that the top one percent of Americans captured 93% of the growth benefits in 2010 (up from 65% in 2001) and the 99% in real incomes did not change in the past 10 years, leads us to certain instability, both economically and politically as I show in my article, "The Theory of Banking:
Why Banks Exist and Why We Fear Them" downloaded free from the SSRN at (http://papers.ssrn.com/...).
So what is to be done? We need to have a tiered tax structure as follows to reduce the ability of the 1% to increase their wealth any further and yet to allow growth of the middle class and for people to enter the middle class from the working class.
1. We return to Eisenhower tax rates for the top wealth bracket of holdings in excess of 1 billion dollars of 90% on all income.
2. For those with holdings of $500 million or more an 80% rate.
3. For those with holdings of $100 million or more a 70% rate.
4. For those with holdings of $10 million or more a 60% rate.
5. For those with holdings of 1 million or more a 50% rate.
6. For those with holdings of $500,000 or more a 40% rate.
7. For those with holdings of $100,000 or more a 30% rate.
8. For those with holdings of $50,000 or more a 20% rate.
9. For those with holdings of $10,000 or more a 10% rate.
10. Under $10,000 in net worth a flat 5% rate.
See tax rates during different periods of US history: http://www.democracyprevails.org/...