Some degree of income inequality is healthy. The reason is not, as is sometimes argued by defenders of market outcomes, to provide incentives. It’s instead to provide a signalling device. If the rewards for one occupation rise markedly relative to another, then that provides information to workers that it would be worthwhile to acquire new skills. Equality of outcome in the wage distribution would, to that extent, make the economy less efficient.
What is that higher income signal to go get new skills other than an incentive?
Second, there is no consistent pattern in advanced industrial economies to suggest lower taxes on high earners stimulate consumption and growth. Sweden has a 70 per cent effective top tax rate yet its economy has performed pretty well since 2016. Far more important has been the country’s supply-side reforms to make it more worthwhile to work.
Supply side reforms being lower marginal income tax rates.