Tax Policy

This is Joseph

I am mostly out for a few weeks, but this is a very interesting piece:

Three or four decades later, scholars are able to look at the fruits of those policies and draw some conclusions. The same main technologies that exist in the United States and United Kingdom are also in use in Germany and Sweden. Those countries are also exposed to the forces of global trade and immigration. But inequality has grown much more sharply in the US and UK than it has in Germany and Sweden. And the main reason seems to be taxes.

and

Lower taxes on the rich straightforwardly engender inequality by giving rich people more money. But they also shift incentives. In the old days of 70 or even 90 percent marginal tax rates, it wouldn’t make much sense for executives to expend enormous amounts of time and energy trying to maximize the amount of money they can personally extract from a company in the form of salary. Instead, you might chase social prestige or other goals. And last but by no means least, tax cuts on investment income increase the extent to which wealth can mechanically beget more wealth as financial assets inherited from or gifted by parents simply earn their natural rate of return over time. 

I think that this gets at one of the key things we forget about economies, that there is not a natural or true economy that would function without interference (or at least nothing that would look like a modern economy).  Instead there are a series of choices that we make about how to distribute resources and create incentives. 

Now there is a moral argument about taxes being a taking.  But it is utterly unclear that you can have ultra-rich people without a strong state to defend them (the classical era and modern approach) or these individuals setting themselves up as warlords (the medieval approach).  That seems to also create a moral obligation for the the rich to contribute to supporting the society that makes their wealth possible.

It would be good to consider these issues more globally when discussing tax reform -- cuts to medicare to create tax cuts for top income earners really needs to be called out as a form of increasing inequality and not as a strategy for growth.