Dylan Matthews on Ezra Klein’s blog offers up this great visual from his Washington Post on changes in tax rates in the US over the last century and leads us into a fascinating discussion on what “optimal” tax rates should be (I suggest you read it for the details).
What these wild shifts in tax policy suggest is that our determination of how much we should tax our wealthiest is not based on any pragmatic assessment of what would result in the best policy outcome, but is rather guided by foundational assumptions about what is fair. If you begin with premise that one has an ethical claim to their “property” if earned legally, then a lower rate seems appropriate. If instead you see taxation as a mechanism for calibrating the distribution of “property” in a way that is optimal for society as a whole, then you can argue, as these economists do, for a much higher rate. These economists disagree. It reflects how ideas matter in policy making. The drift in the last three decades towards neo-liberal assumptions has guided a lower rate, not any inherent sense that our current rate is “better” or “worse” in any tangible sense than it was in the 1950’s.
What do you think is a fair number for the top income bracket? 31%? 39? 73%?
Comments 4
FLUCTUATIONS IN TOP TAX RATES: 1910 TO TODAY | Welcome to the Doctor's Office — December 3, 2012
[...] the top tax rate should optimally be 73%. Sociologist Jose Marichal, however, at ThickCulture, observes that tax policy has rarely been about what is optimal for society. Instead, he writes: What [...]
Kenneth M. Kambara — December 6, 2012
Great post, José. What are your thoughts on tax policy being more independent of a welfare distribution effect? In other words, disaggregate the two. Collect tax revenues in a "fair" manner and redistribute outside of tax policy. I think the problem is you would have to address the deductions/loopholes, which is a third rail issue save for the more die-hard libertarians.
I see the sharp rise in the top income marginals to be subject to prospect theory, so that the losses from increased taxation are going to be overvalued, psychologically, resulting in more aggressive deductions and lobbying for more tax loopholes.
jose — December 6, 2012
Thanks Ken.... interesting take re:prospect theory. Hand't thought about it that way before. I inagine there's ome work out there on lobbying for loopholes after an tax rate increase.
Redgreen — December 8, 2012
The idea that a government would have the right to take 73% of anyone's property (or money) is insane. Until we get a flat tax, where all pay one number and there are zero deductions the US tax code will be a mess.
We are solving our problem by my wife going part time and we'll drop into the 33% tax bracket. We don't spend anywhere near what we make and are saving as much as possible so that we be in a position retire well, and live off very little income. We know that there's a possibility that our investments will be heavily taxed by that's life. We have no kids and plan on spending every dime so that the government doesn't get a penny. The remains will go to charity.