Grabbing bigger slices of the pie
What happens when nations cut taxes for their richest citizens?
Economists Thomas Piketty and Emmanuel Saez, two of the world's most respected authorities on the incomes of rich people, have a straightforward answer: In nations that slash tax rates on high incomes, the rich significantly increase their share of national income.
Here in the United States, for instance, the tax rate on income over $400,000 has dropped by half, from 70 to 35 percent, since the 1970s. Over that same span, the households that comprise the "1 percent" have over doubled their share of the national income, to 20 percent.
In many European nations and Japan, by contrast, tax rates on the rich didn't fall as fast or as far. And rich people's slice of the income pie increased "only modestly," note Piketty and Saez in a new analysis they co-authored with researcher Stefanie Stantcheva.
This phenomenon doesn't trouble conservatives. High taxes on rich people, they claim, do terrible economic damage by discouraging the entrepreneurship that makes economies strong. Lower taxes on the rich, this argument continues, encourage entrepreneurs, who invest and create jobs when lower taxes let them keep more of the income they take in.
Yes, conservatives freely admit, the rich can and do amass plenty of money in a low-tax environment. They'll even increase their share of national income. But the rest of us shouldn't worry. Thanks to the rich, right-wingers argue, we all benefit from a bigger and better economy.
Piketty and his colleagues put these claims to the test. If the conservative argument reflected reality, they point out, nations that sharply cut tax rates on the rich should experience much higher economic growth rates than nations that don't.
The three economists note, reality tells no such story. Nations that have "made large cuts in top tax rates, such as the United Kingdom or the United States," they explain, "have not grown significantly faster than countries that did not."