Thomas Piketty and Tax Day
This morning, EPI will welcome economist Thomas Piketty to lead a panel discussion on wealth, income, and inequality. The event will be live-streamed here.
In his much talked-about book “Capital in the Twenty-First Century,” recently translated from the original French and currently a New York Times best-seller, Piketty argues that without dramatic policy changes—conducted cooperatively across international borders—wealth inequality in developed countries will only continue to increase.
One such policy change that Piketty has endorsed—and one that is quite pertinent on Tax Day—is a major increase in the top marginal income tax rate. Along with co-authors Emmanuel Saez and Stefanie Stantcheva, Piketty has written that the revenue-maximizing top tax rate is 83 percent, more than double today’s top rate here in the U.S.
Dramatically increasing the top rate is a proposal EPI has previously supported. In the context of base-broadening tax reform that aims to increase both federal revenue and tax progressivity, raising rates makes even more sense. Indeed, raising rates can be seen as a complement to, not a substitute for, broadening the base. As the tax code squeezes out opportunities for tax avoidance schemes, the revenue-maximizing top rate would increase because high-income households would have fewer chances to change their behavior in such a way as to lessen their tax liability.
Additional federal revenue is clearly needed. Even as the federal deficit continues to fall in the near term, the major parts of the federal budget (Social Security, federal health care programs, defense) continue to increase in cost, squeezing priorities like education and infrastructure to a smaller and smaller slice of the pie. Worse, Congress looks to be actively searching for ways to give the additional revenue garnered in the deal to avert the “fiscal cliff” away, mostly to corporations. Meanwhile, what individuals pay in taxes remains extremely low, compared to historic standards.
So on this Tax Day, let’s see if we can take a lesson from EPI’s guest speaker Thomas Piketty and talk about a tax policy that usually goes unmentioned—the need for tax reform that broadens the base and raises the rates.