Paul Krugman will argue for the motion: Be it resolved tax the rich (more) at the Munk Debates in Toronto on May 30. Watch it live at 7 p.m. ET.
The United States and, to a lesser extent, Canada and the U.K., aren’t the middle-class societies they used to be.
The share of income accruing to a small number of people at the top – the famous “1 per cent,” of course, but the top 0.1 per cent has done even better – has soared. You can argue that we were always more of an oligarchy than we liked to imagine, but we are much more oligarchic now than we used to be.
Why is this happening? What can and should we do about it? Those are much disputed questions. One thing is clear, however: We can and should raise this lucky elite’s taxes.
Yes, there are “studies” from think tanks funded by the wealthy claiming that imposing high taxes on the wealthy is a terrible thing.
The overwhelming evidence from history, however, is that high tax rates on the wealthy, even rates far above current levels, are consistent with robust economic growth.
The U.S. economy boomed for a generation after the Second World War, delivering a rise in middle-class living standards never seen before or since, even though the wealthy faced tax rates that would be politically inconceivable today. Bill Clinton’s tax hikes didn’t prevent an extraordinary jobs and productivity boom.
What would raising tax rates at the top accomplish? It would, to some extent, mitigate the rise in inequality, which some of us consider a good thing in itself: You don’t have to be a leftist to acknowledge that extreme inequality of income and wealth has a corrosive effect on democracy.
Mainly, however, the benefit of higher tax rates on the wealthy would simply be that it would raise more revenue. We live in a time when politicians are trying to downsize even the most basic social protections, claiming that we can no longer afford to pay for them; well, why not raise taxes on millionaires instead of, say, denying nutritional assistance to the poor?
You will, of course, hear claims that raising taxes on the wealthy won’t even yield increased revenue – that the “job creators” will go on strike, or hide their income from the tax collectors. However, researchers have studied the revenue effects of tax hikes (and cuts) about as thoroughly as any topic in economics, and the evidence is decisive: Increasing top tax rates from their current level would lead to substantially higher revenue. At a sufficiently high rate – the best estimates put it above 70 per cent and possibly as high as 80 per cent – further increases would be self-defeating; but we’re nowhere near that point.
So should we raise taxes on the rich? Absolutely. Higher taxes wouldn’t solve all our problems, but then what would? The point is that higher taxes at the top would be a small but significant step toward a better society, which is all you can ask of any policy.
Paul Krugman is a New York Times columnist, Nobel Prize winner, and global authority on economic inequality.