Dean Baker — MMT and Taxing the Rich

Dean Baker looks at offsets.

He doesn't see "taxing the rich" as a good offset. I don't think MMT economists do either, and as far as I know, they have not pushed this proposal.

"Taxing the rich" through progressive taxation has another reason. That is, limiting the political power of wealth and reducing inequality. There are good reasons for this – social, political and economic.

Some MMT economists have recommend preemption of rent extraction first, with the residual to be addressed by taxation.

Beat the Press
MMT and Taxing the Rich
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

Steve Randy Waldman — The opportunity cost of firm payouts

A lot of left-ish proposals these days, including high marginal tax rates at high incomes and bans on share buybacks, are about increasing the cost to firms of making payouts to rich shareholders, thereby reducing the opportunity cost of other uses of the money. Some of these proposals I think are solid. Some I think half-baked. [1] But the basic logic behind the proposals is missed I think by a lot of smart commentators.

Interfluidity
The opportunity cost of firm payouts
Steve Randy Waldman

Emmanuel Saez and Gabriel Zucman — How would a progressive wealth tax work? Evidence from the economics literature

Senator Elizabeth Warren recently proposed a new wealth tax on the richest Americans. Though the United States does not have a wealth tax, a number of countries around the world have or had progressive wealth taxes. In this paper, we discuss the merits and demerits of progressive wealth taxation in light of the international experience and economic theory. In short, a progressive wealth tax focused on the ultra-wealthy (households with more than $50 million in net wealth) could raise substantial revenues and the economic incidence of the tax would lie overwhelmingly on the richest families. After defining what a progressive wealth tax is, in section 2 we discuss issues of tax avoidance and evasion; in section 3 we discuss the real effects of wealth taxation on the economy; and in section 4 we make concrete proposals to administer a progressive wealth tax effectively in the United States..

How would a progressive wealth tax work? Evidence from the economics literature
Emmanuel Saez and Gabriel Zucman

IMF Worried that High Inequality Could Threaten Global Capitalism — Sharmini Peries interviews Michael Roberts

MICHAEL ROBERTS: I think the IMF, and that clip shows it, is worried that the huge increase in inequality of income and wealth in many countries, like the US and the UK, over the last 20 or 30 years is reaching such extreme levels that there is serious danger of social and political unrest. The great status quo of globalization and neoliberal policies and international activity in the direction of big business is being threatened by this high inequality. Their economists have now started to switch round and have found evidence to show that it doesn't really make a lot of difference to growth if big corporations and CEOs at the top of big companies who are earning fat salaries are taxed more in order to redistribute income effectively to those people who need it more and can be more productive.

In fact, their evidence shows that a higher rate of marginal tax has little or no effect on growth, and you could raise it from the levels which, Donald Trump's talking about knocking it down to God knows where, 15% or lower. Well, the marginal rate according to the IMF economists in their latest report could be as high as 60% or 70% and it would make little difference to growth, but it will make a significant difference to improving the redistribution of income....

TRNN
IMF Worried that High Inequality Could Threaten Global Capitalism

Sharmini Peries interviews Michael Roberts

How Taxes Were Shifted Off Real Estate — Sharmini Peries interviews Michael Hudson

Video and transcript.

Michael Hudson
How Taxes Were Shifted Off Real Estate
Sharmini Peries interviews Michael Hudson

Fabian Kindermann and Dirk Krueger — High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk

Abstract

This paper argues that high marginal labor income tax rates are an effective tool for social insurance even when households have high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. We construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a realistic wealth distribution and then numerically characterize the optimal top marginal rate. We find that marginal tax rates for top 1% earners of close to 90% are optimal as long as the earnings and wealth distributions display a degree of concentration as observed in US data

High Marginal Tax Rates on the Top 1%?
Lessons from a Life Cycle Model with Idiosyncratic Income Risk
Fabian Kindermann, University of Bonn and Netspar, and Dirk Krueger, University of Pennsylvania, CEPR, CFS, NBER and Netspar
January 23, 2015

ht Clonal

Henry J. Aaron — Can taxing the rich reduce inequality? You bet it can!

Two recently posted papers by Brookings colleagues purport to show that “even a large increase in the top marginal rate would barely reduce inequality.”[1] This conclusion, based on one commonly used measure of inequality, is an incomplete and misleading answer to the question posed: would a stand-alone increase in the top income tax bracket materially reduce inequality? More importantly, it is the wrong question to pose, as a stand-alone increase in the top bracket rate would be bad tax policy that would exacerbate tax avoidance incentives. Sensible tax policy would package that change with at least one other tax modification, and such a package would have an even more striking effect on income inequality.…

Brookings
Can taxing the rich reduce inequality? You bet it can!
Henry J. Aaron
ht Mark Thoma at Economists View

John Quiggin — Would a significant increase in the top (US) marginal income tax rate substantially alter income inequality?

Yes. At the tails.

It’s obvious, as the authors note, that the 90-50 measure won’t change, since neither group is affected (there’s no simulation of behavioral responses which might have indirect effects). But, since the 99-th percentile income is very close to $400k, there’s very little impact on this group either. But the tax, as modelled, raises a lot of money from the ultra-rich incomes. As a result, distributing the proceeds at the bottom of the distribution raises incomes substantially, which explains the big changes in the 90-10 and 99-10 ratios.

The real lesson to be learned here, one I came to pretty slowly myself is that old-style measures looking at quintiles or even percentiles of the income distribution are no longer very relevant. The real question, in the economy of Capital in the 21st Century is how much should go to the ultra-rich.

John Quiggin
Would a significant increase in the top (US) marginal income tax rate substantially alter income inequality?

teleSUR — Ecuador's President Correa Warns of Further Destabilization

The South American country has recently been witness to often-violent protests by opposition forces, who are demanding that Correa’s government proposed tax reforms, that would make the wealthiest pay more, should be scrapped. The government has delayed the measures pending a national dialogue and retains strong support according to recent polls.

teleSUR

Ecuador's President Correa Warns of Further Destabilization

Reddit — Member of the 1% Shocks Reddit: ‘I’m Voting for Bernie Sanders. Here’s Why’

Michael Hudson has argued this for years.  Taxing rent would be economically beneficial for growth and better for everyone. The !% would still enjoy the same lifestyle but would not hoard save as much. The difference to them would be marginal rather than substantial. Most would not notice it — only the misers.

Why? Economic performance is a matter of maintaining circular flow at dynamic equilibrium with respect to population growth, and increasing per capital product to the degree possible through innovation.

Rent detracts from circular flow, as does hoarding. If this were invested, especially in innovation, it would not make any substantial difference to the economy other than distributively. But it is not, regardless of the intense propaganda to the contrary.

The pie is smaller than it could be as a result, and distribution is adversely affected too, starving the bottom unless the bottom is subsidized.

Every economist is well aware of this.

AlterNet
Member of the 1% Shocks Reddit: ‘I’m Voting for Bernie Sanders. Here’s Why’
Reddit

David Cay Johnson — The top .001 percent are different from you and me

Warning: Obscene material. User discretion advised. You may become enraged. It's even worse than you imagined.

Al Jazeera America
The top .001 percent are different from you and me
David Cay Johnson

ht Mark Thoma at Economist's View

Yuriko Koike — Thomas Piketty’s Japanese Tour

Six months after Thomas Piketty's book Capital in the Twenty-First Century generated so much buzz in the United States and Europe, it has become a bestseller in Japan. But vast differences between Japan and its developed counterparts in the West, mean that, like so many other Western exports, Piketty's argument has taken on unique characteristics. 

Piketty's main assertion is that the leading driver of increased inequality in the developed world is the accumulation of wealth by those who are already wealthy, driven by a rate of return on capital that consistently exceeds the rate of GDP growth. Japan, however, has lower levels of inequality than almost every other developed country. 

Indeed, though it has long been an industrial powerhouse, Japan is frequently called the world's most successful communist country.

Japan has a high income-tax rate for the rich (45%), and the inheritance tax rate recently was raised to 55%. This makes it difficult to accumulate capital over generations – a trend that Piketty cites as a significant driver of inequality....

So what's the problem?

In fact, there is a sense that Abe's policies are contributing to rising inequality. That is why Piketty's book appeals to so many Japanese. 

For example, though the recent reduction in the corporate-tax rate was necessary to encourage economic growth and attract investment, it seems to many Japanese to be a questionable move at a time when the consumption-tax rate has been increased and measures to address deflation are pushing up prices. To address this problem, the companies that enjoy tax cuts should increase their employees' wages to keep pace with rising prices, instead of waiting for market forces to drive them up. 

Herein lies the unique twist that Piketty's theory takes on in Japan: the disparity is not so much between the super-rich and everyone else, but between large corporations, which can retain earnings and accumulate capital, and the individuals who are being squeezed in the process.

Project Syndicate
Thomas Piketty’s Japanese Tour

Yuriko Koike, Japan's former defense minister and national security adviser, was Chairwoman of Japan's Liberal Democratic Party's General Council and currently is a member of the National Diet.

Also

Across the Curve
Making Piketty’s Case
John Jansen

Robert Waldmann — Obama’s Populist Tax Reform Proposal

Barack Obama has released the details of a fairly radical proposal to increase tax progressivity which he will make in his state of the union address. 

The political impact will dwarf that of Chris Van Hollen’s proposal (which I am sad to say, has been quite dwarfish already). I am very enthusiastic about this. Even Romney is trying to sound populist. I am sure that politicians must have convincing evidence of a populist mood from polls and focus groups even aside from the public polls which, as always, show strong support for soaking the rich. I don’t see how Republicans can win this debate or even avoid debating with each other over whether Obama is a socialist class warrior or not a true economic populist like Republicans. 

Matt Yglesias has an excellent (as usual) explainer at Vox. Basically the proposal is to increase the capital gains tax, close tax loopholes used by the rich, tax borrowing by huge banks and then use the proceeds to make permanent and expand various tax breaks for the non rich.

Looks like populism is in.

Angry Bear
Obama’s Populist Tax Reform Proposal
Robert Waldmann

Ben Walsh — Economists Say We Should Tax The Rich At 90 Percent

All Americans, including the rich, would be better off if top tax rates went back to Eisenhower-era levels when the top federal income tax rate was 91 percent, according to a new working paper by Fabian Kindermann from the University of Bonn and Dirk Krueger from the University of Pennsylvania.

The top tax rate that makes all citizens, including the highest 1 percent of earners, the best off is “somewhere between 85 and 90 percent,” Krueger told The Huffington Post.

The Huffington Post
Economists Say We Should Tax The Rich At 90 Percent

Ben Walsh
h/t Clonal

This what taxing away economic rent means. Economics is about circular flow. Extraction and saving (wealth accumulation) leak from circular flow. Then either the economy contracts, or government accommodates saving (wealth accumulation) with its fiscal balance.

The problem in economics is that neoclassically based econ thinks that money is a veil and market distribution naturally encourages circular flow (Say's law, Walras's general equilibrium). But as Marx observed, capitalism is not about production of goods and services for consumption but rather about wealth accumulation. 

The purpose of a capitalistic economy is really for the "meritocracy" to accumulate wealth as their "just deserts." However, differentiating between productive contribution in terms of real investment and work and economic rent shows that to be a false assumption. Add to that an institutional structure that incentivizes rent-seeking, and you have neoliberalism.

The fix is to disincentivize rent-seeking by taxing away rent and putting suitable institutional controls in place that limit economic rent, e.g., anti-trust legislation to prevent monopoly, monopsony, and oligopoly, limiting artificial barriers to market entry, etc.

Michael Hudson has been on economic rent and the needed to tax it away as a disincentive for rent-seeking and an incentive to productive economic activity as long as anyone living although it goes back to the classical economists.

Ostensibly as a reaction to Karl Marx and Henry George, there was a concerted effort by neoclassical economists to banish consideration of economic rent through marginalism as the basis of meritocracy and just deserts, and a natural tendency toward general equilibrium based on assumptions of market perfection, rationality, and utility maximization. Keynes and his followers showed that to be flawed.

David F. Ruccio — Piketty and the principle of taxation

As it turns out, while working on a new research project (on “Utopia and the Marxian Critique of Political Economy,” for aconference in November), I chanced upon a much earlier discussion of wealth taxes: a speech given by Friedrich Engelson 8 February 1845 in Elberfeld. 

Engels argued that communists had no intention of introducing “common ownership overnight and against the will of the nation.” Still, it was possible to move in the direction of “practical communism” by adopting certain measures—such as “general education of all children without exception at the expense of the state” and “a complete reorganisation of the Poor Relief System.”

"Both these measures require money. In order to raise it and at the same time replace all the present, unjustly distributed taxes, the present reform plan proposes a general, progressive tax on capital, at a rate increasing with the size of the capital. In this way, the burden of public administration would be shared by everyone according to his ability and would no longer fall mainly on the shoulders of those least able to bear it, as has hitherto been the case in all countries. For the principle of taxation is, after all, a purely communist one, since the right to levy taxes is derived in all countries from so-called national property. For either private property is sacrosanct, in which case there is no such thing as national property and the state has no right to levy taxes, or the state has this right, in which case private property is not sacrosanct, national property stands above private property, and the state is the true owner. This latter principle is the one generally accepted — well then, gentlemen; for the present we demand only that this principle be taken seriously, that the state proclaim itself the common owner and, as such, administer public property for the public good, and that as the first step, it introduce a system of taxation based solely on each individual’s ability to pay taxes and on the real public good."

Occasional Links & Commentary
Piketty and the principle of taxation
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Mark Thoma — Why income redistribution doesn't hurt growth

Thomas Piketty's book "Capital in the Twenty-First Century" documents the increase in inequality in recent decades, and it has rekindled an old debate about the effects of income redistribution on economic growth. Until recently, most economists believed there's a trade-off between equity and efficiency and that the redistribution of income would lower economic growth.

Several reasons account for this, such as the economic distortions that taxes imposed to redistribute income and wealth can cause. However, the main reason is that taking income away from the wealthy reduces the incentive to implement innovative ideas. In its most extreme form, where redistribution is used to ensure that everyone has the same income, why bother to work hard, or work at all?

But as the recent paper "Redistribution, Inequality, and Growth" by Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides of the International Monetary Fund explains, there are also reasons to believe the redistribution of income can enhance economic growth in some cases....

Economics does not tell us what the distribution of income ought to be. That involves a value judgment, and individuals will differ on what is fair and equitable. But economics can tell us about the consequences of redistribution, and the best evidence we have suggests that modest redistribution, if anything, enhances growth.

CBS News Money Watch
Why income redistribution doesn't hurt growth
Mark Thoma | Professor of Economics, University of Oregon

Steve Roth — Lane Kenworthy, Prosperity, and the Infinite Forms of “Redistribution”

Which brings me to another recent paper (prominently citing the previous one), that questions the Left’s rhetorical emphasis on (in)equality:

I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1 per cent’s share or the Gini coefficient. That could distract attention from more direct and effective efforts to address those problems.

Such efforts include fully universal health insurance; improvements in eligibility, duration and benefit level for various social-insurance and social-assistance programmes; wage insurance; early education; enhanced financial support for college; a minimum wage indexed to prices; an expanded earned-income tax credit indexed to average compensation; and monetary policy less tilted towards inflation avoidance.

Policy changes like these would go a long way towards improving economic security, enhancing opportunity (and mobility) and ensuring shared prosperity in the US. Inequality of political influence could be lessened via direct reforms, such as reversal of the Citizens United decision, introduction of a strong transparency rule and public funding for congressional election campaigns.

Asymptosis

Lane Kenworthy, Prosperity, and the Infinite Forms of “Redistribution”
Steve Roth

Another approach to reducing inequality rather than the global wealth tax proposed by Piketty, which everyone already agrees is going nowhere.

AFP — International Monetary Fund strongly suggests countries tax the rich to fix deficit

Tax the rich and better target the multinationals: The IMF has set off shockwaves this week in Washington by suggesting countries fight budget deficits by raising taxes.
Tucked inside a report on public debt, the new tack was mostly eclipsed by worries about the US budget crisis, but did not escape the notice of experts and nongovernmental organizations (NGOs).

“We had to read it twice to be sure we had really understood it,” said Nicolas Mombrial, the head of Oxfam in Washington. “It’s rare that IMF proposals are so surprising.”

Guardian of financial orthodoxy, the International Monetary Fund, which is holding its annual meetings with the World Bank this week in the US capital, typically calls for nations in difficulty to slash public spending to reduce their deficits.
But in its Fiscal Monitor report, subtitled “Taxing Times”, the Fund advanced the idea of taxing the highest-income people and their assets to reinforce the legitimacy of spending cuts and fight against growing income inequalities....

The IMF’s Copernican revolution is still in the twilight stage. In its report, the IMF continued to push for a wider scope for value-added tax (VAT), a tax consumption tax that some say is inherently unfair, and on reductions in public spending. 

The Raw Story
International Monetary Fund strongly suggests countries tax the rich to fix deficit
Agence France-Presse

Jullian Berman — The Rich Are Hoarding Cash And It's Making Us A Lot Worse Off: Experts

America's top 1 percent saved their money at a rate of 37 percent last quarter, according to a recent survey from American Express Publishing and the Harrison Group highlighted by CNBC. That means that during that period, wealthy Americans put away about 37 cents for every dollar they earned, which is more than triple their savings rate in 2007. In addition, a Bank of America study cited in the CNBC report found that more than half of millionaires have a "substantial" amount of cash on hand and of that group, about 60 percent said they didn't plan to invest it in the next two years.

As the recovery struggles to gain solid ground, the findings indicate that even while America's wealthiest households are taking home a larger share than ever of the income pie, they're doing little to put that money to productive use in the economy, experts say. One possible solution: raising taxes on the rich.

The Huffington Post
The Rich Are Hoarding Cash And It's Making Us A Lot Worse Off: Experts
Jullian Berman

Mark Gongloff — The 1 Chart That Reveals Just How Grossly Unfair The U.S. Tax System Has Become

The Huffington Post
The 1 Chart That Reveals Just How Grossly Unfair The U.S. Tax System Has Become


Mark Gongloff