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De Rugy vs. Chait: Round 2



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Over at New York magazine, Jonathan Chait feels compelled to explain to his readers why he is “forced to be so mean” to me. The answer pretty much is that I won’t agree with him. For instance, I disagree that the way to reduce income inequality is to increase the progressivity of the U.S. tax code. One reason is that it wouldn’t work. Consider this: The data shows that countries with “less income inequality” have actually less progressive tax codes than the U.S. That probably means that increasing progressivity of the country with the most progressive tax code won’t affect inequality. And of course, we know that if we don’t reduce spending, it won’t do enough to reduce the deficit and our projected debt.

For this reason, I had to, once again, offer some arguments and data to support my position. In addition, I suggested that he turns to people he may find respectable. Here are a few of them:

I am not sure what else to add except to suggest that Chait take a look at the OECD data himself. Alternatively, he can read the work of people he finds more respectable than me. I can suggest the excellent new book by economist Bruce Bartlett in which he does a very good job at demonstrating this point (and much more) or The Money Illusion’s academic economist Scott Sumner (here). For instance, the respectable Sumner suggests reading the work of economist Peter H. Lindert (Growing Public: Social Spending and Economic Growth since the Eighteenth Century) which shows that “Europeans were able to raise more tax revenue only by having more regressive tax systems than the U.S., i.e. tax systems that relied more heavily on consumption taxes.  This is now pretty much common knowledge in the public finance area.”  Here is also a really interesting article with the provocative title “Taxing the Poor to Pay the Poor” in The Economist addressing these same issues.

Interestingly, if inequality is really what concerns him (I personally care about mobility, especially at the bottom), he should be intrigued by the following paragraph from the scholar who wrote the OECD chapter from which the data come:

So while the U.S. tax system is progressive and reduces inequality, the U.S. welfare state is much less effective at reducing inequality. And because the U.S. has a very unequal distribution of income from capital and a much wider wage distribution than many other OECD countries, it ends up as a relatively unequal country after taxes and benefits.

The whole thing is here.



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