Disposable income is not truly necessary? You have to be kidding? Disposable income is exactly what is needed to build wealth.
No, you're focusing narrowly on an income concept and trying to apply it to post-consumption discretion. Marginal utility of income is using disposable and non-disposal income to weight consumption by elasticity, and inelastic items get treated preferentially. "Not necessary" is a way of saying that it can be spent based upon wants rather than actual needs. Wealth accumulation isn't an economic necessity. Every person has base level needs that include food, shelter, and a minimal level of physical safety, the costs of which can be quantified.
It's a pretty straightforward concept: if you make $1,000 a month, a larger portion of your income goes to purchase inelastic demand items than if you make $10,000 a month, and by the time you hit $100,000/mo of income the percentage (and real amount) of disposal income has grown even more.
All three of those people could live in a $300/mo apartment if they wanted to, but only the lowest chooses to and the other two choose to live somewhere else.
$1k/mo guy pays 0% income tax on the $300/mo he uses to pay his rent, and his total cost is $300.
$10k/mo guy lives in a $2,000/mo house, and he still pays 0% on the $300 but also pays 20% on the $1,700 additional dollars he spends on his rent. His total cost is effectively $2,340.
$100k/mo guy lives in a mansion that costs $20k/mo to operate and maintain. He pays 20% on the first $5k of that, then pays 37% on the rest, and doesn't get a 0% rate on any of it because he's phased out of refundable credits that made the allowed the other to to pay 0% (or less) at some point. His total cost is $26,550.
There's no judgement on specifically what is and is not "necessary" and each is entirely free to choose to pay or not pay whatever they want constrained only by their income. The adjustment is in real price due to what extent each of theirs next dollar (the "marginal" dollar) is taxed, and the consumer retains free choice about what to do with their dollars spent on housing.
There are literally millions more people in the bottom 4 tax brackets than the top 3 tax brackets. Those millions of people basically control policy via the voting booth. It appears that most of the middle class and lower class Americans don't understand basic economics. They are literally voting themselves to be permanent underclass, and supporting those politicians that wish to keep them there permanently. It's really sad.
I don't disagree with you, Romney was correct in saying that the bottom 47% of wage earners pay no (or even negative) income tax. The system has been abused because there shouldn't be a negative range and the 0% range should be very limited.
The underlying economic logic is sound, but it is also abused and stretched and has additional judgements built in over and above the mathematical answer.
