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Do low taxes on the rich leave the middle-class with lower wages?


Stashed in: Economics!, Wealth!, America!

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What’s more, increases in the rich’s income share didn’t coincide with increases in the rate of GDP growth. That fits the Saez/Piketty/Stantcheva theory that the rich aren’t getting more productive; they’re just getting better at bargaining because lower tax rates give them the motivation to get better at bargaining.

Much more research has to be done before we can accept the Saez/Piketty/Stantcheva findings as proven. But their research does point to a plausible way that lowering income tax rates for the wealthy — and in particular lowering rates on capital income — could worsen pre-tax inequality without any economic benefit.

Fieldhouse’s study, then, demonstrates how income taxes matter both more and less for inequality than is commonly thought. They matter less in the sense that their declining progressivity still can’t explain the bulk of the massive increase in inequality in recent decades. But they matter more in that taxes could have other effects, besides the measure of their progressivity, that in turn affect inequality.

In any case, it’s a reminder that we should be talking a lot more about policies, including tax policies, that could reduce inequality before the country even starts spreading the wealth around.

I'm all for policy discussion and debate. Why are American public officials so reluctant to do so?

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