Income inequality is a real thing and a problem. It’s not clear what the solution is, since it’s driven by the technology
Perhaps history can be our guide. It happened a few times in the US history whenever there are disruptive technological development: Industrial revolution, automobile... Somehow, things started to equalize each time after inequality peaked.
Well, the usual outcome is some sort of economic pain that results in policy change. Or a revolution. You pick
The driving factor seems to be growth of capital > growth rate of the economy. This is not easy to fix once it has been allowed to progress to the point it has in the U.S. The problem accelerated when the Reagan Admin collapsed all the upper marginal income tax rates down to just one low rate, ~27 percent. This wildly popular fiasco was partially undone by subsequent tax legislation. Nevertheless the problem of failing to tax properly at the upper end is still with us and is none too slowly destroying American democracy. We need quite a few more brackets on the way up to a top marginal rate of at least 70%. Ditto for the Capital gains tax. Not only is this essential if democracy is to be saved, but it is also essential if the nation is to remain financially sound into the distant future. Although U.S. Treasury Securities do not represent debt, they do represent a future obligation to expand the amount of outside money left to circulate in the economy. If we run large deficits that do not yield sufficient future growth in GDP, we are forced to sidetrack newly created outside money* in the form of Treasury bonds to limit the amount of circulating money to that that can be supported by the GDP without unacceptable inflation. Bond servicing costs tend to rise non-linearly when taxing is insufficient. Eventually bond servicing could dominate non-discretionary spending. At that point we will be forced into some combination of increased taxation, increased inflation, or decreased discretionary spending, and by the time this occurs we may have already lost our democracy . This unhappy situation can be put off by starting to tax appropriately now, rather than waiting for a crisis to occur. Assuming we want to keep our democracy intact, prudent money management requires that we go back to taxing appropriately at the high end, something we haven't done correctly since Reagan. _________________ *We convert new money from deficit spending into Treasury Securities as a means of holding inflation in check. The Central Bank's function is largely one of adjusting the ratio of circulating money (think Bank reserves) to non-circulating in the form of Treasuries. I am ignoring the main contributor to M2, which is credit, or what economists refer to as "inside" money. Inside money is temporary. It appears when a loan is made, and disappears when it is paid off.