Economist.com is hosting a debate about whether rich people should be taxed more. The title of the debate, “Resenting the Rich,” has the merit of being honest. Defending the proposition is (surprise, surprise) a Frenchman, Thomas Piketty, a professor of socialism in Paris. Against the proposition is Chris Edwards, director of tax policy at the Cato Institute.
Here is Piketty’s position:
For the sake of concreteness, let us say that we are talking about introducing an 80% marginal tax rate on all annual incomes in excess of €1m, leaving the rest of the tax system unchanged. I believe that such a policy reform could and should be implemented immediately in countries such as the United States, the UK, France or Germany.
It encapsulates quite well why I left France ten years ago. I couldn’t stomach — and I still can’t — this statist mentality and the resentment against people making money.
But here is the best part. Piketty wants an 80-percent tax on the rich in the name of the free market.
If we do not take this kind of policy action, there is a serious risk that citizens will ask for much more damaging, anti-market policies.
But then, obviously, he doesn’t read many economic articles or the relevant data since he claims that there is no evidence that taxing the rich give them an incentive to change their behavior:
The idea that heavy taxes on very top incomes would entail huge economic distortions is purely ideological and is based upon zero empirical evidence.
For starters, Mr. Piketty could read articles by the chair of Obama’s Council of Economic Advisers, Christina Romer on the fact that tax rates matter. And this one is particular:
Tax changes that are made…to reduce an inherited budget deficit, in contrast, are undertaken for reasons essentially unrelated to other factors influencing output. Thus, examining the behavior of output following these relatively exogenous tax changes is likely to provide more reliable estimates of the output effects of tax changes. The results of this more reliable test indicate that tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.
Read the great rebuttal by Chris Edwards (who is Canadian btw) here.