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Leaving aside the moral arguments, would this actually work to reduce inequality? Piketty makes a case that GDP wouldn't suffer with a much higher top marginal

Leaving aside the moral arguments, would this actually work to reduce inequality? Piketty makes a case that GDP wouldn't suffer with a much higher top marginal rate, but doesn't demonstrate (here) that it would significantly alter wealth inequality. There are a number of ways that might not follow: capital flight or tax avoidance, untaxed fringe benefits saving money, general regressive flows like "having stock" wiping out the change. Scheidel (The Great Leveler) has argued, I think pretty persuasively, that mundane domestic policy doesn't undo inequality. It can constrain it, and sometimes diminish it briefly before wealth catches up to the changes, but major reversals seem limited to economic crisis, if not actual war or collapse. Diminishing top-end incomes might slow the worsening of inequality, but Piketty's own thesis (r>g) suggests that it won't do anything to actually arrest the trend.

kolbe 7y ago
You bring up possible implications of altering the system, but there's really no way to know without experiments. And with a system as unique as the 2019 United States, we cannot reliably look to other countries or other eras to give us natural experiments.
- Bartweiss 7y ago
  Certainly the inability to run a test or set a control is a constant problem for macroeconomics, but I don't think that deprives us of all information. Piketty, at least, is content to compare the relationship between top marginal tax rate, pre-tax income share, and GDP in Germany, Denmark, the UK, and the USA since the 1970s. He finds that higher top marginal tax rate correlates to (and precedes) decreased top pre-tax incomes, and doesn't correlate with GDP. Inequality numbers might be distorted by other changes, but it would be interesting to at least see the naive comparison between top marginal tax rate and change in wealth inequality for those same countries.

kolbe 7y ago

You bring up possible implications of altering the system, but there's really no way to know without experiments. And with a system as unique as the 2019 United States, we cannot reliably look to other countries or other eras to give us natural experiments.

Bartweiss 7y ago
Certainly the inability to run a test or set a control is a constant problem for macroeconomics, but I don't think that deprives us of all information. Piketty, at least, is content to compare the relationship between top marginal tax rate, pre-tax income share, and GDP in Germany, Denmark, the UK, and the USA since the 1970s. He finds that higher top marginal tax rate correlates to (and precedes) decreased top pre-tax incomes, and doesn't correlate with GDP. Inequality numbers might be distorted by other changes, but it would be interesting to at least see the naive comparison between top marginal tax rate and change in wealth inequality for those same countries.