And Why it’s Unlikely to Work
It is a no-brainer, basically: a progressive rate in income taxes, along with estate taxes that target the super wealthy.
In a new book, the British economist, Anthony Atkinson, leaves no doubt these are the keys to fixing the problem. According to a review by Thomas Piketty: “the spectacular lowering of top income tax rates has sharply contributed to the rise of inequality since the 1980s, without bringing adequate corresponding benefits to society at large. We must therefore waste no time discarding the taboo that says marginal tax rates must never rise above 50 percent.” (See his review of Inequality: What Can Be Done?.)
He calls it a “taboo,” suggesting that he knows resistance to the idea is beyond logic or reason – and would be very hard to change.
Reagan in the US and Thatcher in the UK were responsible for drastically lowering the tax rate on the wealthy back in the 80’s. In the UK the top rate was reduced from 83% to 40%. In the US, it was reduced to 28%. But how did the idea of changing these rates become taboo? Why did economists fall into line behind this idea?
With Reagan and Thatcher, the wealthy began their contemporary, sophisticated effort to dominate the political process, as corporations and their associations learned how to influence congressmen, regulators, and other government officials, while getting more involved in political campaigns. That, together with the new power of the investment industry, essentially made economists into agents of business. They have become, with some rare exceptions, the advisors, philosophers, and courtiers of our new elite, making it hard for them to challenge what their patrons want to hear. That is what makes it taboo
Piketty, in his review, notes other reforms that could affect inequality. “At the core of [Atkinson’s] program is a series of proposals that aim to transform the very operation of the markets for labor and capital, introducing new rights for those who now have the fewest rights. His proposals include guaranteed minimum-wage public jobs for the unemployed, new rights for organized labor, public regulation of technological change, and democratization of access to capital.”
The point is that the rules, the policies and ideas that underlie income inequality are neither unworkable nor unthinkable. They can be challenged. They may be taboo to other economists who know what side their bread is buttered on. But others are coming along with newer ideas and different constituencies.
The public conversation is changing, but up until now silence from mainstream economists not only signaled disapproval, but also proscribed conversation and debate. Taboo is a somewhat strong way to describe the limits on talk, usually implying the risk of disgust or horror or revulsion. That may apply to economists, and sometimes it may also rub off on the public who would usually not feel that level of intensity.
But perhaps a new tradition of populist economists is in the making, not only less easily intimidated, but actually eager to change the terms of debate and confront what have been “taboos.” Perhaps the issue will be raised in the un-coming U.S. election.