Tag: Progressive tax

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.)