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Wednesday, November 07, 2007

Rogoff: The Golden Haves in the Age of Globalization

Ken Rogoff says we shouldn't try to increase taxes on the ultra-rich because they will just find a way to avoid it:

The golden haves in the age of globalization, by Kenneth Rogoff, Project Syndicate: ...The latest Forbes list of America's wealthiest individuals showed that last year's highest nine earners, whose ranks include New York City's mayor, Michael Bloomberg, managed to increase their wealth by $5-9 billion last year. Yes, that is just the annual increase in their wealth. Collectively, their $55 billion in earnings outstripped the entire national income of more than 100 countries.

To put these astronomical numbers in perspective, ... to be among the top nine earners in the United States, you had to pull in at least $150 per second, including time spent eating and sleeping. That is $9,000 per minute, or $540,000 per hour.

How much do America's highest income earners make compared to the world's billion poorest individuals? Well, if the top nine donated their earnings, it would be the equivalent of about three months income for the bottom billion. ...

As for the other nine months, given that the US accounts for only 25 percent of world income, it is a fair guess that there are some very wealthy individuals elsewhere who might be able to kick in. (Lebanese-Mexican telephone magnate Carlos Slim, for example, is a close competitor to Gates for the title of the world's richest man.)

Mind you, the idea that the ultra-rich could easily solve poverty is stupefyingly naive. Most serious academic research strongly supports the view that rich countries can best help poor regions like Africa by opening their markets, and by providing assistance in building physical and institutional infrastructure.

The greatest successes in fighting global poverty have come from China and India, two countries that have largely pulled themselves up by their own bootstraps. ... Are massive income and wealth differences an inevitable outcome of fast growth? By and large, the answer from history is "yes." China, whose growth performance since 1970 has now broken every record, is well on its way to having the world's most unequal income distribution. Indeed, China has passed the US and is nearing Latin American levels of inequality.

Policy solutions are not easy. Many super-earners are also super-creative and bring enormous value. Places like the United Kingdom actively court wealthy foreign nationals through extraordinary preferential treatment of their investment income. The ultra-rich are an ultra-mobile group, too. If you are earning $540,000 an hour, it does not take too long to save up to buy an apartment, even in London.

Anyway, there are limits to how much tax pressure the political system can apply to the ultra-rich. Consider that any of the top nine American earners make more in two days than leading US Presidential candidate Hillary Clinton raises for her campaign in a good quarter of the year. Rather than punitively taxing wealth, globalization strengthens the case for shifting to a flat tax on income (or better yet consumption) with a moderately high exemption. Aside from the usual efficiency arguments, it is just going to become increasingly difficult and costly to maintain complex and idiosyncratic national tax arrangements.

Unfortunately, movements toward fundamental tax reform are on the back burner in most countries. One can only hope that our children's generation will grow up to live in a world that does a better job of balancing efficiency and equity than we do. ...

I suppose tax competition could drive us to just two tax rates, zero up to some level of income and a fixed rate for any income above that (though I'm more confident than he is that we can enforce progressive rates, even on the ultra-rich), but is that equitable? And do we really think the incentives of the super rich to accumulate wealth would be stifled to a noticeable degree if they only made, say, $360,000 an hour instead of $540,000? I think I'd still be trying to pluck that apple off the tree.

    Posted by on Wednesday, November 7, 2007 at 02:16 PM in Economics, Income Distribution | Permalink  TrackBack (0)  Comments (67)


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