Inequality and Government Policy

Paul Krugman wrote a NYTimes column recently which caused a Blog furor. Many of the Majors wrote on it. What follows is a list of most relevant Posts, Clicks will lead to the commentary.
Andrew Samwick, Mark Thoma, Brad DeLong, and Greg Mankiw. The Readers may be bored at this point, but Someone may want to check the original Pual Krugman for his Thoughts on the matter, which has been around for awhile. One might also ask why I have delayed writing on this Issue, and I can only say I wanted some prospective on the Argument.

Does Government polices actually affect Inequality?
I agree with Krugman more than with the Others-including Thoma. It does indeed impact pre-tax Income, mainly in the arena of managerial Wage and Product Price settings. A higher Business Tax and Personal Income taxation will induce higher Wage grants to minimal Wage employees, while reducing the incentive of productivity Wages. Even Business Profits assume less desirability, and so generating less inflationary pressure on Product Pricing. Contraction of Tax rates around a norm, though Stepped, gives incentive to Managers to search for forms of economic profits above normal Business profits.

Do Higher taxes actually reduce Investment Capital?
Here again We are faced with a common homily. Every Economists unites to proclaim lower Taxes (more compressed Steps in the Tax rates) promotes Capital aggregation, and thereby Investment. The trouble here lies in the proliferation of Tax Breaks of every kind to Business, which obscures the actual effect of compressed Tax rates. It is further confused by the fact there is little evidence of Tax Breaks actually producing viable Capital investment; they mainly being known for Production of submaximizing Profits for tax purposes, and Paper instrument investment inflation (such instruments actually hamper Production with an additional Cost of excessive Investor payments).

Do Government policies impact Inequality of Incomes?
Most certainly! There remains much difference between a 20% Tax rate on two Incomes: $50,000 and $50 million. Economists never quantify impact of Tax rates on Living Standards, and there is no doubt that reduced Tax rates on the Wealthy must be made up in some form (including the future taxation of Public debt) by the Economy as a whole. The forms of Taxation also often discriminate against poorer Incomes, forcing a greater devotion to Consumption over Savings (showing an inverse relationship with compressed Tax rates). I will not even enter into the Issue of Corporations moving taxable Funds overseas as early as 1995, in expectation a potential Republican Administration and Congress could gain compressed Tax rates before The Taxman Cometh. lgl