And they call for the creation of a Public Protection Bureau, to help the I.R.S. Saez and Zucman also favor a wealth tax Elizabeth Warren’s version is based on their work. A company would have to pay the tax on its profits in the United States even if it set up headquarters in Ireland or Bermuda. One crucial part of the agenda is a minimum global corporate tax of at least 25 percent. Those are the kinds of policies that do lift economic growth. The tax increases would bring in about $750 billion a year, or 4 percent of G.D.P., enough to pay for universal pre-K, an infrastructure program, medical research, clean energy and more. The overall tax rate on the richest 1 percent would roughly double, to about 60 percent. In their book, Saez and Zucman sketch out a modern progressive tax code. It’s about creating an economy that works better for the vast majority of Americans. Which means that raising high-end taxes isn’t about punishing the rich (who, by the way, will still be rich). It was true in the lead-up to the Great Depression, and it’s been true recently. The American economy just doesn’t function very well when tax rates on the rich are low and inequality is sky high. growth has been disappointing, and middle-class income growth even worse. The wealthy, and only the wealthy, have done fantastically well over the last several decades. The justification turned out to be wrong. The justification for doing so was usually that the economy as a whole would benefit. Politicians cut every tax that fell heavily on the wealthy: high-end income taxes, investment taxes, the estate tax and the corporate tax. Companies found ways to take more deductions and dodge taxes. The United States had arguably the world’s most progressive tax code, with a top income-tax rate of 91 percent and a corporate tax rate above 50 percent.īut the second half of the 20th century was mostly a victory for the low-tax side. (The Confederacy’s hostility to taxes ultimately hampered its ability to raise money and fight the Civil War.)īy the middle of the 20th century, the high-tax advocates had prevailed. Plantation owners worried that taxes could undermine slavery by eroding the wealth of shareholders, as the historian Robin Einhorn has explained, and made sure to keep tax rates low and tax collection ineffective. The Southern colonies, by contrast, were hostile to taxation. Massachusetts even enacted a wealth tax, which covered financial holdings, land, ships, jewelry, livestock and more. The story starts in the 17th century, when Northern colonies created more progressive tax systems than Europe had. Saez and Zucman portray the history of American taxes as a struggle between people who want to tax the rich and those who want to protect the fortunes of the rich. Look at history.’” As they write in the book: “Societies can choose whatever level of tax progressivity they want.” When the United States has raised tax rates on the wealthy and made rigorous efforts to collect those taxes, it has succeeded in doing so. “Many people have the view that nothing can be done,” Zucman told me. The story they tell is maddening - and yet ultimately energizing. They have constructed a historical database that tracks the tax payments of households at different points along the income spectrum going back to 1913, when the federal income tax began. Saez has won the award that goes to the top academic economist under age 40, and Zucman was recently profiled on the cover of Bloomberg BusinessWeek magazine as “the wealth detective.” The authors are Emmanuel Saez and Gabriel Zucman, both professors at the University of California, Berkeley, who have done pathbreaking work on taxes. The data here come from the most important book on government policy that I’ve read in a long time - called “The Triumph of Injustice,” to be released next week. The combined result is that over the last 75 years the United States tax system has become radically less progressive. Over all, their taxes have remained fairly flat. And they now pay more in payroll taxes (which finance Medicare and Social Security) than in the past. Federal income taxes have also declined modestly for these families, but they haven’t benefited much if at all from the decline in the corporate tax or estate tax. This overall rate was 70 percent in 1950 and 47 percent in 1980.įor middle-class and poor families, the picture is different. The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. It helped push the tax rate on the 400 wealthiest households below the rates for almost everyone else. President Trump’s 2017 tax cut, which was largely a handout to the rich, plays a role, too.
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