One reason Democrats want to raise taxes on wealthier Americans is to combat the perceived problem of growing inequality. But that strategy hasn't worked in Britain. An interesting study from the Institute for Fiscal Studies in the U.K. looked at the rising of income inequality over there and found that high taxes have not stemmed the growing gap:
Even though the current Government has increased taxes on people with high incomes, this has not prevented them from racing further away from the average level of living standards across the country. In recent years, it is only in the wake of extended falls in the stock market that the incomes of the richest have fallen.
My take: I have argued this point for some time. Among the reasons for growing income inequality, though I have reason to doubt the gap is as severe as some make it out to be, are 1) rising—and nonlinear—rewards for high levels of education, 2) rising rewards for superstar performers—whether NBA stars or CEOs—who can capture economic benefits from a global presence, 3) the stock market. If you are not exposed to the market, whether as an investor, a financial professional, or someone whose salary is tied to the market performance of your company, you will fall behind.
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Thomas Shawn of MA 9:50PM January 31, 2008