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Thursday, October 24, 2013

'Why the 1% Should Pay Tax at 80%'

Emmanuel Saez and Thomas Piketty:

Why the 1% should pay tax at 80%, by Emmanuel Saez and Thomas Piketty,  theguardian.com: In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pattern is true of other English-speaking countries..., however, globalization and new technologies are not to blame. Other OECD countries ... have seen far less concentration of income among the mega rich.
At the same time, top income tax rates on upper income earners have declined significantly since the 1970s... At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large. ...
There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares...
The ... data show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. ... What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top (that is, scenario three), rather than increased productive effort....
By our calculations about the response of top earners to top tax rate cuts being due in part to increased rent-seeking behavior and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% (as opposed to the 57% allowed by the pure supply-side model). ...
In the end, the future of top tax rates depends on what the public believes about whether top pay fairly reflects productivity or whether top pay, rather unfairly, arises from rent-seeking. With higher income concentration, top earners have more economic resources to influence both social beliefs (through thinktanks and media) and policies (through lobbying)...
The job of economists should be to make a top rate tax level of 80% at least "thinkable" again.

    Posted by on Thursday, October 24, 2013 at 09:12 AM in Economics, Income Distribution, Politics, Productivity, Taxes | Permalink  Comments (103)

          


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