Taxes Aren't Just About the Money; They Level the Playing Field

Taxing the billionaires out of existence and the millionaires into humility will solve so many more problems than needed revenue.

Mike Konczal and Bryce Covert at the Nation:

Taxes don’t just produce revenue; they are capable of restructuring how the whole economy works. That the decline in the highest tax rates has insidiously created our runaway inequality is explored in a recent paper by economists Thomas Piketty, Emmanuel Saez and Stefanie Stantcheva, who set out to investigate the relationship between tax rates and the top 1 percent in several key countries.

For example, the top marginal tax rate in the United States was over 70 percent between the New Deal and the Reagan Revolution, but has been below 40 percent since then. The top tax rate in England went from 80 percent to 40 percent during the 1980s. These are also the two countries with the largest growth in inequality.

As shown in the graph, there’s a strong correlation between the growth in pre-tax income inequality and the decline in tax rates. The argument that economists usually put forward to explain this is a conservative supply-side argument: when people are taxed less, they work harder and thus make more money.

But there’s a more plausible—and more worrisome—explanation: wages are the result of bargaining in which the relative strength of each side is influenced by tax policy. As tax rates decline, executives have more reason to fight for higher salaries for themselves, especially through actions like stacking their corporate boards. Boards and other institutional interests are motivated to pay out the new wave of superstar salaries, since they aren’t being taxed away.

 Read the whole thing.