Tax the Rich

Why have the top few percent have taken over such a large part of the economy?



That chart (source) shows that lowering their taxes plays a very large part in the story.

Is this due to economic fundamentals (aka: globalization, computers, the rise of winner take all business models), or a simple political victory by agents of high income individuals?

2 thoughts on “Tax the Rich

  1. Douglas Knight

    What do you mean by the first choice? Why would a change in economic fundamentals lead to correlation? I can see that any of the three particular fundamental changes could lead to inequality, but none of them seem particularly relevant to top marginal income tax rates. (Well, maybe globalization, but it doesn’t seem to have happened.) But those three fundamentals are global, so even if fundamentals were relevant to both axes, why would there be a correlation?

    If absolute tax and inequality are correlated across nations (which they are), then movement along the frontier would yield the same correlation. You could imagine that the frontier as parameterizing specializations. And you could imagine that change of fundamentals causes countries to change their specialization. But I don’t interpret history that way, except for Ireland.

    If you want to compare the hypotheses that A caused B vs B caused A, it is natural to look at time series. The time series for the US in the article you link shows that inequality picked up after the Reagan tax cut, but was fairly flat before and after the bigger JFK cut. But they don’t give time series for other countries (neither BI nor the original).

  2. Ben Hyde

    What I was casually trying to say is something along these lines: There are many stories told about why we have experienced a large increase in inequality. These stories server many roles. For example one roles is a search for truth. One role is that each story implies what actions we might take to address the problem. One role is that each story serves to advance this or that political agenda (intentionally or unintentionally). And one role is that these stories can raise a fog of fear uncertainty and doubt about what to do and hence encourage doing nothing.

    But I think some of these stories are pretty clearly true, for example the tax rate story above, and that in turn means we could stop wringing our hands and do something about this before we all end up swearing allegiance to one or another liege lord.

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