In Denmark you get your free day care so you can become a 2 income family, double income outs you very quickly into the top marginal tax rate of around 60%. Average income tax rates are 45% there, plus a non deductible 25% VAT, plus a 45% top marginal rate for capital gains in case you were trying to save for retirement, plus a 1-3% land tax.
Are these taxes creating ‘equality’? Nope, Denmark has a widening gap in wealth and income, they have started from a very narrow distribution, but have steadily worked to hollow out the middle class. It makes no sense to earn in the middle of their income distribution, you either need to drop into the range where you receive net benefits or jump way into the top of the income range to afford what amounts to top rates of 70-80%.
I have suggested that in the U.S. we have done this also. A household below the median income pays payroll taxes, sales taxes, and possibly property taxes. It loses benefits at a steep rate, and when you factor that in it faces a high tax rate. This impedes upward mobility, as I argued in my essay on the Universal Basic Income.
Currently marginal tax rates are extremely high on median incomes. However, I think the leftists goal is to extend that state of affairs all the way up the income ladder. Start adding all sorts of “benefit” fade outs that come at $75k, $100k, $125k, etc. Those aren’t particularly difficult income levels for a two income household in an expensive city to reach. Imagine all income between say $50k and $150k being basically the same after you factor in things like daycare, education, medical, etc.
I would note too that all of these phase outs would protect people making journalism wages but penalize their fellow graduates that choose STEM or business.
https://www.nytimes.com/2019/02/24/opinion/income-inequality-upper-middle-class.html?action=click&module=Opinion&pgtype=Homepage
“However, I think the leftists goal is to extend that state of affairs all the way up the income ladder. Start adding all sorts of “benefit” fade outs that come at $75k, $100k, $125k, etc. Those aren’t particularly difficult income levels for a two income household in an expensive city to reach. ”
Leftists won’t do this because so many of their core supporters are people in that income range living in expensive cities and states. Hitting the $75K-$150K range wouldn’t just target high paid STEM grads, it would target K12 teacher households (a married couple of middle-aged career blue-state union teachers could reach $200K or more in household income). This is why you see Elizabeth Warren trying to pay for her schemes with a wealth tax on billionaires, and not upper-middle class tax hikes.
I think leftists believe they can keep those voters based on:
1) Culture war issues
2) Political Tribalism
3) To the extent they or their industries are beholden to party interests (think teachers)
4) The ability to obscure the effect (instead of new taxes, just imagine lots of new benefits that phase out at those income levels paid for with debt)
5) Shaming and norm enforcement
Also, they will need fewer and fewer of those voters as the electorate gets less white. Even upper middle class people who are brown will vote Dem for racial reasons regardless of tax rates.
The median household income in the US is around $61k. So substract $24k for the standard deduction, and you have an AGI of $37k. At that point, the marginal federal income tax rate is 22%. Then you add in payroll tax, which gets you to 29.65%. Then, assuming you live in a flat tax state with an income tax of 6%, that is a marginal tax rate of 35.65%. To my knowledge, the only benefit that phases out around those levels of income is the savers credit, which, for households making around that median income, might not be a big deal, given that the credit requires $4k in retirement contributions from a couple. Are there programs or tax breaks that have overlooked?
Denmark is an interesting case because it has the equivalent of about an $18 per hour minimum wage. In International Currency terms thta is over $44k per year, so that if you are working, you are middle class. Luxembourg does the best in Europe in terms of middle class income and not surprisingly it also has relatively lower rates of taxation, and a minimum wage that although relatively high – second highest – is still less than half that of Denmark.
The Netherlands are the kids to watch as they have shown the most improvement both in reduction of lower income population and growth in middle class population. Again unsurprisingly, the Dutch have been steadily cutting their tax rates over the years. And their minimum wage is third highest at about the Luxembourg level.
One might consider whether their VATs, which tax imports across the board, also act to protect their domestic workforce employment and wages.
The two paramount goals of the US economics guild appear to be creating high unemployment and subsistence level, but only if necessary to contain civil disorder, wage levels for non-elites.
Throwing out the US tax system and replacing it with a VAT would probably be the salutory policy move in terms of US middle class welfare. Paulo Guedes advocates a similar move for Brazil and if he is successful, I would predict a rapid increase in average PPP for |Brazilians.
http://www.pewresearch.org/fact-tank/2017/04/24/7-key-findings-on-the-state-of-the-middle-class-in-western-europe/
Another concern of mine is whether the UBI approach works and what are the unintended consequences. In many cases it does but I believe that in a significant number of cases it fails miserably. The remedial needs of the poor who are also affected by mental health issues or addiction will remain underserved, a not insignificant number. So if UBI significantly reduces transactions costs in serving the poor, but is expensive and doesn’t reduce inequality, encourage moving upward to the middle class and doesn’t solve the needs of the mental health/addiction poor; then it needs more work.