For some reason or another, I have income inequality on my mind. A few weeks ago I read an article somewhere (I honestly can't remember where, nor could I find it, much to my annoyance — if anyone out there remembers reading the article, please remind me of its provenance) that proposed the United States deal with its income inequality problem by indexing tax rates to the level of income inequality. In other words, if income inequality in the US were to increase, the marginal tax rate would increase for those in tax brackets above the median, decrease for those below, and vice versa if inequality were to decrease.

Initially I thought this was a somewhat sensible idea. It would, in theory anyway, be a fantastic way to keep income inequality in check. But, as I mulled the idea over, I realized the plan has a few problems. At least in my mind, this plan necessitates that the United States government establish some kind of ideal level of income inequality. Otherwise, the IRS would have a difficult time determining how much to change marginal tax rates or when to even take action to adjust them. I suppose the ideal level of inequality would maximize the incentives to become more productive created by high incomes (which are diminished when a marginal dollar of income is taxed at a higher level) while minimizing the harms to society imposed by too large a gap in income inequality, like obesity, high healthcare costs and violent crime. I don't claim to be an expert economist, but I suspect actually finding that optimal point would be tricky. And, even if someone more brilliant than I could find an ideal income inequality ratio, I shudder even to consider the political fallout from setting a national income inequality target.