At Least He’s Honest About It

Building on Alex’s post on income inequality, I note that Mathew Yglesias published this over at Vox. Yglesis advocates for raising the top marginal rate on salaries above $10 million to 90% and the inheritance tax of estates over $10 million to 90%. His argument is that the Laffer Curve is largely bunk and there is no evidence that raising incomes that high would seriously hurt the economy, at least if it were confined to the upper strata of income.

Let’s put aside a few things. Let’s put aside that France tried to raise the top tax rate to 75% and it was a disaster. Let’s ignore that even when that marginal tax rate was 97%, it didn’t stop rich people from being rich*. Let’s ignore that while many economists dispute where the peak of the Laffer Curve is, no one thinks its near 90% or doesn’t exist. Let’s ignore that when you add in state, local and Medicare taxes, this would mean a marginal rate of over 100%. Let’s ignore that previous efforts to tax the evil stinking rich have often resulted in a game of rich person whack-a-mole where they just get income from different sources. In the 90’s, the Democrats put a cap on the amount of CEO pay that could be categorized as a business expense. The result was that CEO’s started getting paid in stock options, which contributed directly to the tech bubble.

No, we’ll put Yglesias’ economic illiteracy aside. Instead I want to applaud him. Because he admits that a 90% marginal rate will bring in little if any revenue. What he argues is that this would stop corporations from paying such huge salaries and therefore pay more to lower level employees. Or something. And high taxes on estates would stop people from inheriting massive wealth. Or something. His argument is that this would address growing income inequality. No word on whether he also thinks cutting the legs off of tall people would help short people dunk basketballs.

I’ve said before that raising taxes on the wealthy isn’t really about revenue. Increases in the marginal rate would increase revenues, although not as much as tax reform would. But that’s a side effect. A huge amount of the motivation for raising taxes on the rich is redistribution. As Barack Obama himself said, it’s about spreading the wealth around. So at least Yglesias is admitting what we all know.

Of course, this won’t go anywhere. Despite the best efforts of the wealth redistributors, the American people don’t want a 90% marginal rate. There is broad support for the rich to pay more, but not at this level. So, in the end, Vox is running an article that is just about as grounded in reality as the most fantastic libertarian fantasy.

(*It’s a funny thing. Jjust as wealth and income inequality are coming back into vogue thanks to Picketty’s new book, I am growing more and more suspicious of it. I am beginning to suspect that the “equality” of the mid-20th-century was a product of how we measure it, not a real phenomenon. Rich people don’t get rich by letting the government take their money; they find ways to shelter it. The 97% marginal tax rate we enjoyed until the 1960’s came with a lot of shelters so that very few people actually paid it — and often it was someone who’d made a new fortune and was trying to raise themselves up into the ranks of the rich. The 97% rate was mainly a way of beating down rising stars so that the rich would remain pure and blue-blooded.

Liberals understand this to some extent. When conservatives point out that capital gains revenue boomed after the tax rate cut, they correctly reply that the taxes reaped from ordinary income fell by a greater amount. The rich just changed how they were getting paid. I suspect the supposed happy valley of income equality was similar but don’t have the resources to do the research.

I am also growing dubious of using income and wealth as pure measures of inequality. It makes things convenient for economists, but doesn’t necessarily tie to reality. Housing and food, relative to income, are much cheaper now for poor and middle class people than they used to be. Most of the working class can now afford homes; they used to almost all rent. Measures of leisure time show that the poor and middle class have more of it than they used to. Just to take examples from my own family: one set of grandparents were middle class. They had a maid, as almost everyone in their social stratum did. No one has maids anymore because they are paid too much (and, it should be noted, other opportunities have opened up to the working class). On the flip side, my other grandfather worked two jobs and had a working farm just to stay functionally poor.

I suspect we are focusing too much on money measures and not enough one thing in life that really matters: time. This is one of the big reasons that I suspect Picketty’s trendy book — like Das Kapital before it — will eventually be unravelled by better minds.)

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  1. Seattle Outcast

    What he argues is that this would stop corporations from paying such huge salaries and therefore pay more to lower level employees.</blockquote.

    Only if you held a gun to their head and forced them to do so, and most likely not even then. I assume he's upset that top corp execs get paid many millions of dollars while there are monkeys on the assembly line that are merely making six figure incomes with their union jobs, or that Walmart employs the bottom of the barrel for retail help, meaning that if these people could get jobs in fast food, they would have done so already.

    Before they stop paying CEOs so well, they need to repeal a few poorly thought thru laws making these people subject to prison sentences for the actions of other people.

    Also, the ability to run a major corporation isn't easy, and the number of people actually capable of doing it, even poorly, is actually quite small. Law of Supply and Demand is fully in force for this.

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  2. richtaylor365

    Margaret Thatcher had the proper measure of these pinheads 30 years ago;

    https://www.youtube.com/watch?v=okHGCz6xxiw

    And amazingly (not really, it’s all they got) they still sing the same weak assed song.

    It all comes down to their warped sense of fairness and their total ignorance of how the free market works. Punishing achievers will somehow make the slackers feel better about themselves, and keep voting for those that stick it to the rich.

    For all the bellyaching about corporate America, why don’t clowns like Yglesias go after Hollywood, surely those folks got money to burn. No mention about that left handed reliever that works one day in five and makes $25 million a year, too bad the market dictates wages and not the easily offended sensibilities of progressive dopes.

    Would not these folks, those champions of the downtrodden, best serve their readers by addressing the root causes of poverty, and spotlight Obama’s failed economic policies? Why do they think middle income wages has gone down, the worse job participation rate in 50 years, the highest levels of welfare receipients, food stamps, the greatest percentage of Americans under the poverty rate for earned income, and the high number of folks on government assistance…………all under their boy’s watch {crickets}?

    When conservatives point out that capital gains revenue boomed after the tax rate cut, they correctly reply that the taxes reaped from ordinary income fell by a greater amount.

    But the “revenue boom” was far greater and brought in significantly more tax receipts to make up for the ” ordinary income fell by a greater amount” levels. We have had this discussion before, nothing spurs an economy more than allowing those that have capital to spend and invest more of their capital as they see fit. The Kennedy, Reagan and Bush tax cuts created more wealth and prosperity for more working Americans than any punitive/progressive tax rate;

    http://www.heritage.org/research/reports/2007/01/ten-myths-about-the-bush-tax-cuts

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  3. AlexInCT

    Let’s ignore that previous efforts to tax the evil stinking rich have often resulted in a game of rich person whack-a-mole where they just get income from different sources.

    You are making the same mistake all the class warriors that fall for this rhetoric do Hal: this isn’t a tax on the evil stinking rich, but on the upstarts trying to get rich. Income tax almost never impacts the evil stinking rich (see Buffet for example), because they make it a point to have negligible income tied to a job. Their income is from investments and other such vehicles that allow them to often avoid taxation. That’s not accidental either, because these evil stinking rich, often politicians or politically connected, created this very system that allowed the evil stinking rich to avoid taxation while making sure they control the gates to the evil stinking rich country club.

    And speaking about Buffet: it should come to you as no surprise that he is one of the biggest proponents of that 90% death tax. That’s because one of his most profitable businesses is selling life insurance – to cover the taxes – to the evil stinking rich. Buffet isn’t alone in thinking there is huge money to be made with this scheme. People need to wise up: the class warriors are criminals that pretend todo what they are doing in the name of leveling the playing field, while the results of their actions have the exact opposite result. The left always gravitates towards a class system with 2 levels: the ultra-rich credentialed elite class in charge and the rest of us. I am not alone in that assessment.

    This game is not about hitting the rich where it hurts, it is about keeping the riff-raff out of the evil rich country club. This is nothing but the elite leftists protecting their turf. Woe be the idiots that still are unable to see this for what it is.

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  4. Hal_10000 *

    Margaret Thatcher had the proper measure of these pinheads 30 years ago;

    Man, I loved it when Thatcher did Minister’s Questions. She was so awesome. And Rich, you make a great point. Addressing income or wealth inequality addressed the symptom not the disease. The disease is broken families, broken schools, a broken economy with a lack of opportunities and jobs to lift people up.

    This game is not about hitting the rich where it hurts, it is about keeping the riff-raff out of the evil rich country club. This is nothing but the elite leftists protecting their turf. Woe be the idiots that still are unable to see this for what it is.

    Bingo. I heard a lot of this in the 80’s, how the “new rich” were ruining it for everyone.

    The biggest flaw in PIcketty’s analysis is that he assumes the rich are just the rich, some amorphous blob. But class mobility is just as high now as it was fifty years ago. The difference is that people can climb higher than they used to.

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  5. AlexInCT

    The disease is broken families, broken schools, a broken economy with a lack of opportunities and jobs to lift people up.

    The reason none of these is ever addressed, or even allowed to be mentioned as the reason things are bad, is because we can thank the left’s ideology and the policies it produced for every single one of these. When you reward behavior you don’t want, even if what you say you are doing is helping people that need help, expect more of it. Not less. It becomes an even bigger problem when you couple that with punishing success.

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  6. ReganT

    Whenever progressives complain about income inequality I usually offer this hypothetical situation.

    I have two pies, A and B. Pie B is twice as big as pie A. I cannot eat both pies—that’s too much for me—so I decide that I will give some to a needy family. They can either have 1/2 of pie A or 1/3 of pie B. The kicker is that you get to decide which piece they will receive. How do you choose?

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  7. Biggie G

    I have always thought that there are only 2 big picture ways of looking at taxes.

    1, Taxes are a necessary levee on the populace to pay for the services and operation of the government.

    2. Taxes are a way to get back at people who are doing better than you think they should.

    If you believe in 1, then at least we can have a discussion. The people who believe in 2 will always have an excuse for their hypocrisy.

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  8. hist_ed

    Many of the measurements of income equality used don’t count government transfers or taxes paid. Obviously doing so makes the poor seem poorer and the rich seem richer.

    This: http://reason.com/reasontv/2008/02/03/living-large is an old video from Drew Carey about the struggling middle class. It was pre-recession, but the economist quoted in it makes a great point-if you measure goods by the average amount of work time it takes to get them, you have a entirely different look at income mobility.

    Finally, of course, a lot of lefties talk about the rich as if they are always the same people. There is a lot of income mobility. I was once in the bottom 20%, I’m now in the top 20%. Age and experience tend to propel people up the economic ladder.

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