The American Economic Association Awards Bad Economics

P rofessor Gabriel Zucman of the University of California, Berkeley, was just awarded the John Bates Clark Medal for his research on economic inequality and tax evasion. The medal is given by the American Economic Association (AEA) to an “American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.” Unfortunately, Mr. Zucman’s contributions seem engineered to distort his colleagues’ and the public’s understanding of the relationship between taxes and inequality.

A protégé of Thomas Piketty, Zucman popularized the claim that the wealthiest Americans pay a lower overall tax rate than the poor. President Biden invoked this claim when introducing his “billionaire tax” proposal, and Senator Elizabeth Warren regularly deploys Zucman’s work in her crusade for federal wealth taxes.

Instead of rewarding Zucman’s claims, we should place them under a microscope. According to him, the wealthiest Americans saw their combined tax rate drop from almost 70 percent in the 1950s to just 23 percent in 2018 — which is astounding, if true, given that he also contends that the bottom half of American workers now pay a higher tax rate (24 percent) than the wealthy. Imagine a before-and-after picture for a weight-loss regimen: Zucman’s arguing that top earners have shed much of their tax burden while that of low-income Americans has grown larger than ever before.

When Zucman released his stats to the New York Times in 2019, several economists noticed something fishy in his arithmetic. His calculations made the assumption that wealthy shareholders bear the entire burden of corporate taxation. But corporate-tax incidence spreads across a variety of economic actors due to pass-through effects and the distortions that these taxes create for investment. For example, workers ultimately pay about 20 percent of the corporate-tax burden, according to the center-left Urban Institute–Brookings Tax Policy Center. Other estimates suggest that as much as 40 percent of the burden falls on labor. By assuming these difficult realities out of existence, Zucman severely overstates the estimated tax burden on wealthy Americans in the mid 20th century, when federal corporate-tax rates were much higher than they are today. In other words, he overestimates the top earners’ “before” picture, which exaggerates the before-and-after comparison of tax rates.

Zucman uses a similar sleight of hand for the bottom end of the income distribution. He intentionally excludes the earned-income tax credit and the child tax credit from his math. By omitting these refundable credits, his statistics overstate — by nearly twice as much — the tax rates on the bottom 20 percent of earners. These adjustments create the illusion that taxes on the wealthy have declined over the past half century while taxes on the poor have dramatically increased.

Reality paints a different picture, and Zucman once conceded as much. Shortly before he made his famous claim in 2019, the Berkeley economist co-authored a paper using more-conventional accounting methods to estimate the tax burden of the top 0.001 percent of earners. According to those findings, these earners paid an estimated 42 percent of taxes in 1964 and 41 percent in 2014, suggesting that the overall tax rate on the ultra-wealthy was essentially unchanged in the intervening half century.

So, what accounts for this discrepancy between Zucman’s studies? Zucman appears to have placed his finger on the scale. Shortly before his news-making claim in 2019, it seems, he quietly deleted the conflicting data from his website — until other economists noticed the cover-up. In the aftermath of this discovery, former treasury secretary Larry Summers declared that he was “about 98.5 percent persuaded by [Zucman’s] critics” that the data are “substantially inaccurate and substantially misleading.” Even Harvard balked at Zucman’s apparent propensity to bend his academic research to fit his political views. The university reportedly canceled a job offer to the economist in 2020 over concerns about his data integrity.

The AEA’s medal citation clouds Zucman’s academic malpractice in unintentional euphemism. The association credits his “entrepreneurial and creative pursuit of new data and methods for economic measurement.” It certainly takes “creativity” to craft a narrative favoring wealth taxation when the wealthiest earners already shoulder the largest share of the tax burden, and when our tax system is already highly progressive. Sadly, the AEA has chosen to side with left-wing politics over empirically verifiable reality.

Phil Magness is the director of research and education at the American Institute for Economic Research. Steve Miller holds the Adams–Bibby Chair of Free Enterprise at Troy University.