But that isn't what's happening. The bottom quartile's incomes have shrunk when adjusted for inflation and they have stagnated since the 80s.
That IS a problem.
Assume an income tax rate of X%, cap gains tax rate of Y%, and a rate of return R.
Consider a spender. In year 0 he earns 1 dollar, he pays X% in cap gains and spends the rest. In total he paid X year 0 dollars.
Consider a saver. In year 0 he earns 1 dollar, he pays X% in cap gains and invests the rest. 1 year later he is holding (1-X)(1+R), which he cashes out of. He then pays Y[(1-X)(1+R)-(1-X)] in taxes. In total, he has paid X+Y[(1-X)(1+R)-(1-X)]/(1+R) in year 0 dollars in taxes.
The latter is always greater than the former.
Lets expand your example. Suppose the rate of return is 100%. The spender received $10,000 at time 1 and paid $5,000 in year 1 dollars. 50% tax rate.
In contrast, the saver received $20,000 at time 0 and paid $10,000 in taxes. Then they invested the remainder, and at time 1 received an additional $10,000. He then paid $2,500 on that. In year 1 dollars, he paid $20,000 ($10,000 year 0 dollars == $20,000 year 1 dollars) in income taxes + $2,500 in cap gains. That's a total tax rate of 56.25%.
To be a bit of a devil's advocate here: Why is that a problem as well?
Assuming that despite their wages "shrinking", they are still leading decent, normal lives then what about that is bad? Perhaps their labour in the greater context isn't worth all that much to others and that doesn't fit in to our world-view? Or are we simply expecting that their "status" or "wealth" should be increasing along with the economy?
Mind you, this all goes out the window if a good , if austere life is guaranteed somehow, then capitalism and consolidation away.
1. Nothing, assuming of course they are living those lives. There is a body of evidence, however, so overwhelming that at the lower incomes the people are not leading healthy lives. That is a matter of debate for someone with a medical degree and you could probably write books about this topic alone. Poor conditions reinforce poor behaviors.
2. Perhaps. Of course everyone will argue that their "greater context" is the right one. The question you're really asking here is "are we okay with letting the least productive members of our society suffer and struggle for survival?" Maybe for some people the answer will be yes. There's no logical argument I can provide for those people that will sway them.
3. That is the mantra of trickle down economics that has been proven consistently false over the last 30 years. Neither wealth nor income have trickled down despite increases in productivity. Of course one could also subscribe to the idea of "this is not a problem", but that's the intellectual equivalent of sticking your head in the sand or throwing a tantrum.
In the west however it's stagnating which it also will other places over time.
Also, I'd love to see evidence of an income drop (not to be confused with a wage drop, since wages are only a shrinking fraction of income).
But what has been happening for at least 30 years is the rich are getting considerably richer, but everyone else's income is either stagnant or dropping. To expect the general public to continue to be happy with this state of affairs is simply unreasonable.
Outside of that (and stability/coherence of political power), what reason is there for rich people to exist though?
Because I can't think of any. And typically non-productive beings that exist due to the efforts of others are known as parasites.
Inequality is when the poor get 2x richer, but the rich get 3x richer, in real terms (not nominal). Do you have any reason to believe this is a problem?