Pretty good reasoning. I'm not sure though that income inequality is necessary for progress. I think it's a side effect of progress but not a cause for it. I think it might be possible to obtain hard work from smart people without a lot of inequality. Of course rewards are important, and in that sense some amount of inequality is necessary for innovation to happen. But if you look at the bulk of major breakthroughs in technology throughout history, they were done by academics or government employees. Sure we need investors to get excited. But for that we don't need insane levels of inequality.

The bottom line for me is that "taxation doesn't remove incentives". We need people to get excited about making money, and investing in startups, but we don't need most of the crap that neo cons are trying to push on us. 99% of problems we face that have to do with inequality won't affect rates of innovation and startups.

We can see that nordic countries have even better rates of startups and entrepreneurship per capita than the US as a whole. What this means is that we can deal with the inequality problem in a smart way and be better off. There is fundamentally no difference between taxation of successful people or companies, and spreading the risk like YCombinator does. This is the solution. It's just the smart thing to do. The reason we're not doing it is not because "we don't know what to do", or because "inequality is necessary for progress" but because people are dumb and are being brainwashed by the media.

Please read my comment (mike429) and answer any point you disagree with. You sound smart so I'd like to see if you make more sense than me on the things I pointed out. Thanks.