Study: Piketty Tax Plan Would Boost Equality by Making Rich Less Rich. But Poor Would be Poorer Too

 

Margaret Thatcher once accused a Liberal member of parliament of wishing to have “the poor poorer provided the rich were less rich.” The Iron Lady would probably say much the same to economist and inequality researcher Thomas Piketty after the reading the following analysis from the Tax Foundation. The report looks  at the results of Piketty’s suggestion to implement “top income tax rates of 80 percent on income above $5 or $10 million” and “50 or 60 percent on income above about $200,000.” Below are some of the key findings:

*If ordinary income were taxed at the top rates of 80 and 55%, our model estimates that after the economy adjusts, total output (GDP) would be 3.5% lower, wage rates would drop 1.6%, the capital stock would be 7.4% less, and there would be 2.1 million fewer jobs.

*If capital gains and dividends were taxed at the new tax rates along with ordinary income, the economic damage would be much worse. GDP would plunge 18.1% (a loss of $3 trillion dollars annually in terms of today’s GDP), the capital stock would be 42.3% smaller than otherwise, wages would be 14.6% lower, 4.9 million jobs would be lost, and despite the higher tax rates, government revenue would actually fall.

*Although Piketty’s proposed income tax increase may appear to target only upper-income taxpayers, all income groups would suffer from the economic fallout.

*Our model estimates that the after-tax incomes of the poor and middle class would drop about 3% if the higher rates do not apply to capital gains and dividends and about 17% if they do.

The report concludes: “The top individual income tax brackets that Piketty recommends—50 to 60 percent and 80 percent—would have the direct effect of reducing after-tax income inequality in the United States but the indirect effect of making people at all income levels significantly poorer.”

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  1. Valiuth Member
    Valiuth
    @Valiuth

    Let me tell you all a Romanian joke that pertains to this. 

    One day God and St. Peter come down to Earth to grant miracles to the unfortunate. In England they stop in a pub and see a man drinking his pint in silent melancholy. 

    “What is troubling you sir?” asks St. Peter.

    “Oh I’m just thinking about my neighbor and its depressing me.” says the Englishman. 

    “How come?” ask St. Peter. 

    “You see my neighbor runs a very successful shop. It is always busy with costumers and he is making a lot of money. My own shop however isn’t doing so well and I am nearly broke.”

    God feeling pity for the man offers to grant him one miracle. The Englishman, grateful, wishes that his own shop can be as successful as his neighbors. 

    Travelling further through the world God and St. Peter come across an Italian who is drowning his sorrows in a bottle of wine. 

    “What is troubling you Seniore?” ask St. Peter. 

    “Oh I’m just thinking about my neighbor and its depressing me.” answers the Italian.

    “How come?” ask St. Peter. 

    (Continued in new post.)

    • #1
  2. Valiuth Member
    Valiuth
    @Valiuth

    “You see, my neighbor he has found himself a beautiful wife who adores him, and together they are so happy. Me? I am alone, and I will never find such a woman for myself.”

    God feeling pity on the man offers to grant  him one miracle. The Italian, unbelieving, asks that he too can find the perfect woman to be his wife. 

    Traveling further through the world God and St. Peter come across a Romanian who is weeping over his bottle of tsuica

    “What is troubling you tovarish (this joke is from the 80’s)?”  asks St. Peter. 

    “Oh I am just thinking about my neighbor and it’s depressing me.” he answers. 

    “How come?” asks St. Peter. 

    “You see, my neighbor has this goat that gives him milk, and I used to have a goat just like it but mine died and now my family doesn’t have milk any more.” 

    God feeling pity on the man offers to grant him one miracle. The Romanian, without hesitation, asks that his neighbor’s goat die too.

    • #2
  3. Full Size Tabby Member
    Full Size Tabby
    @FullSizeTabby

    When asked which is preferable (the exact numbers have varied over many surveys, but something like this):

    a society in which the range of income is $25,000 – $150,000 and the median is $75,000; or
    a society in which the range of income is $25,000 – $75,000 and the median is $50,000
    A depressingly large percentage of the population choose option 2.

    • #3
  4. user_1030767 Inactive
    user_1030767
    @TheQuestion

    I’m not an economist, I’m a biologist, so I try to come up with biological analogies that help me understand economics.

    I seems like there must be a kind of allometry in income distributions.  Allometry means that as the whole grows, the parts grow at different rates.  E.g. when people grow, their heads grow too, but not as fast as the rest of the body.  Otherwise we’d grow up looking like Charlie Brown characters.

    For example, the CEO of Walmart makes around $20 million/year (just a real rough estimate).  Walmart employs about 2 million people.  So that means the CEO of Walmart makes about $10/year per employee working at Walmart.  If the owner of a small store that employs a handful of workers only earned $10/year/employee, he’d starve to death.  

    I’m just speculating, but it seems like as an economy grows, two things happen.  First, there is more wealth to go around, and more people are lifted out of poverty.  Second, the most successful people have more wealth than the most successful people when the economy was smaller.

    Thus, I believe reducing inequality and reducing poverty are antagonistic goals.

    • #4
  5. Instugator Thatcher
    Instugator
    @Instugator

    Gee, I wonder what would happen in the model if both after-tax AND after-transfer payments were taken into account.

    • #5
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