First, I'm not an economist - just a regular Joe interested in a small part of the subject. Second, I apologize if this is a better question for the 'politics' stack exchange, but I figured I might get a more thorough/technical answer here.
The question: What is flawed with the following scenario (i.e. what are the downsides or why is it not realistic)?:
- A government's tax model is hard on the wealthy. For simplicity's sake, let's say it caps an individual's annual income (total via employment, capital gains, gifts or anything else) to $1,000,000 USD. So if they make more than that, the rest goes to taxes (or same-year purchases, I suppose) - no exemptions for this tax bracket.
- The government invests the additional taxes into education - providing high quality, cheap/free high level education. In theory, boosting the education level of the country as a whole - and hopefully stimulating innovation, etc.
- Other taxes flow back into businesses - incentives to start and run small businesses. This could keep the markets competitive (plus, no business 'too-big-to-fail' or gross monopolies). Since owners/stakeholders wouldn't profit beyond a point, the focus may go to social/science/tech advances (making a name for one's self), giving back, etc. They could also hire more, use more services, and otherwise stimulate the economy that wat. I suppose you'd need some 'business savings account' to allow large businesses to have a safety net as they could otherwise become unstable.
Anyway, maybe it's just me, but it seems like making $1M/year would still make for a fantastic living and one you could retire on quickly. You'd still see people making 20x what others earn, so the point isn't to completely flatten the social scale, just even it out.
It seems like this would result in:
- A more just society where the bottom 40% of the nation controls MORE than 1% of the wealth. Obviously you'll still have bums, drug addicts, etc. but that's a reality everywhere so unless it worsens the problem I wouldn't consider that a flaw; and perhaps a rehabilitation system could be funded.
- Create a more robust economy as you'll have a lot of businesses competing and lots of educated people pushing the limits and as stated before, perhaps looking to higher-minded goals than the bottom-line.
- A higher standard of living on average - as more people would be educated, employed and contributing to society.
So again - why doesn't this work? What are the downsides? Or is this just the wrong stack-exchange?