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.

Peter Martin — The Half-Life of Money

There’s a concept in Physics known as the half-life, which is commonly applied to the decay of radioactive materials. Say there are 1000 atoms of an unstable isotope, to start with, they will decay to 500 atoms after a time and release radioactive emissions in the process. Then, again after the same time, the 500 atoms will decay to 250. Then 125 and so on. So the radioactivity is decaying over time, but never quite decays to zero. But mathematically we can say it tends to zero as time progresses. The shorter the half-life the quicker the decay.

This concept can be applied to the way taxes act on every financial transaction, starting when governments first spend their created money. If Income taxes are involved the rates can be very high. Up to 75% in France for example. On the other hand some transactions are tax free, (even in France!) so we have to consider a weighted average tax rate per transaction. If that average is 5% then it will take 14 transactions before half of it is returned to government. Increase that to 7% and it becomes only 11 transactions. 10% takes 8 transactions, 20% takes just 5 transactions. 30% takes 3 transactions.

Modern Monetary Theory: Real Economics
The Half-Life of Money
Peter Martin

digby — A 1 percenter tells the truth about "job creators"

Nick Hanauer, successful entrepreneur and one percenter, gave testimony on income inequality a few days ago before the U.S. Senate. His testimony in full should be posted in every break room in America:

Hullabaloo
A 1 percenter tells the truth about "job creators"
digby

(h/t Mark Thoma at Economist's View)

Rick Ungar — Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory-GOP Suppresses Study

What do you do when the Congressional Research Service, the completely non-partisan arm of the Library of Congress that has been advising Congress—and only Congress—on matters of policy and law for nearly a century, produces a research study that finds absolutely no correlation between the top tax rates and economic growth, thereby destroying a key tenet of conservative economic theory?

If you are a Republican member of the United States Senate, you do everything in your power to suppress that report—particularly when it comes less than two months before a national election where your candidate is selling this very economic theory as the basis for his candidacy....

This paragraph from the report says it all—

“The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”

Forbes | Opinion
Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory-GOP Suppresses Study
Rick Ungar | Contributor
(h/t MoveThroughIt in the comments)

Steve Randy Waldman does Michal Kalecki

So, it is to my great discredit that I had not read Kalecki’s Political Aspects of Full Employment (html, pdf) before clicking through from a (characteristically excellent) Chris Dillow post. There is little I have ever said or thought about economics that Kalecki hadn’t said or thought better in this short and very readable essay.

Read it at Interfluidity (short)
Michal Kalecki on the Great Moderation
by Steve Randy Waldman

Another reason that DSGE and New Keynesianism was wrong.

Mark Thoma — "High Tax Rates Won't Slow Growth"

With the "taxes harm growth" and Laffer curve arguments undercut by research such as this, Republicans have fallen back on the argument that it's unfair to take income away from those who earn it. But that presumes that the system allocates income fairly, a claim that is hard to swallow given how much financial executives are paid relative to their contribution to the productive process (to name just one example). There's nothing unfair about using taxes to "clawback" misdirected income, and it won't harm growth to send income where it should have gone in the first place.

It's called taxing economic rent.

Read it at Economist's View
"High Tax Rates Won't Slow Growth"

by Mark Thoma

Should we be taxing at all in a stagnant economy?

Yes. Inequality and lack of fairness are socially and economically detrimental. When inequality grows due to both rent-seeking behavior and lack of fairness, e.g., a tilted playing field, then distributional maleffects have to be addressed fiscally by taxing away rents while increasing transfers where most needed and spending that is stimulative. 

One purpose of taxation is to discourage behaviors that are detrimental, e.g., socially, environmentally, or economically, and that is still needed even when the sectoral balance approach and functional finance indicate larger fiscal deficit is needed to offset increased non-government saving desire.