I’m finally getting through Thomas Piketty’s Capital in the 21st Century. Among other enlightening points, Piketty notes in his fourteenth chapter that the increase in the share of national wealth held by the top 1% correlates neatly with the reduction of the Reagan/Thatcher-era reductions in top marginal income tax rates. Piketty says tax cuts for the rich explain the explosive growth of executive salaries much better than any suggestion that executives are actually doing more work to earn more pay:
In the 1950s and 1960s, executives in British and U.S. firms had little reason to fight for such raises, and other interested parties were less inclined to accept them, because 80–90 percent of the increase would in any case go directly to the government. After 1980, the game was utterly transformed, however, and the evidence suggests that executives went to considerable lengths to persuade other interested parties to grant them substantial raises. Because it is objectively difficult to measure individual contributions to a frm’s output, top managers found it relatively easy to persuade boards and stockholders that they were worth the money, especially since the members of compensation committees were often chosen in a rather incestuous manner.
Furthermore, this “bargaining power” explanation is consistent with the fact that there is no statistically significant relationship between the decrease in top marginal tax rates and the rate of productivity growth in the developed countries since 1980. Concretely, the crucial fact is that the rate of per capita GDP growth has been almost exactly the same in all the rich countries since 1980. In contrast to what many people in Britain and the United States believe, the true figures on growth (as best one can judge from official national accounts data) show that Britain and the United States have not grown any more rapidly since 1980 than Germany, France, Japan, Denmark, or Sweden. In other words, the reduction of top marginal income tax rates and the rise of top incomes do not seem to have stimulated productivity (contrart to the prediction of supply-side theory) or at any rate did not stimulate productivity enough to be statistically detectable at the macro level [Thomas Piketty, Capital in the 21st Century, trans. Arthur Goldhammer, Harvard University Press: Cambridge, MA, 2014, p. 510].
Restoring top marginal tax rates to pre-Reagan/Thatcher levels is the economically least harmful way to reduce the deficit. Raising top marginal tax rates denies few if any moguls of money they have “earned.” It’s also an effective way to check the income equality that threatens political equality. As economist and industrialist Josiah Wedgwood (cited by Piketty two pages earlier) said with regard to estate taxes in 1929, “Political democracies that do not democratise their economic systems are inherently unstable.”
Do you mean the “trickle down” is really just “water torture”? Reagan started the death of our middle class and one political party is made up of a base gullible to believe it’s helping them when every economic indicator says they’re worse off every year.
Good one Porter.
“Trickle down, supply side” and other such euphisms are, in reality, “voodoo economics.” That’s one thing GHWB got right. Decades of economic history have proven that, but the greedy wealthy never give up.
If the top marginal rates were raised couldn’t the companies pay part of the CEO’s salary in stock? And when this stock was sold wouldn’t it be taxed at capital gains rates? This would be a good incentive for the CEO to run a well managed company. I realize this happens some now with stock options.
@cah: “Restoring top marginal tax rates to pre-Reagan/Thatcher levels ….”
So will you also restore the deduction of personal interest (car loans, credit card debt, etc), reduce the threshold of the medical expenses deduction and reinstate full deductibility of travel and food for businesses in your “soak the rich” reversion to the pre-Reagan tax levels?
Are you also advocating reintroducing the plethora of tax brackets to capture those revenues not captured by only raising the top one or two maximum brackets? I believe there were 16 different brackets pre-Reagan, 7 of which were greater than 36%. And will you also end the indexing of the tax brackets for inflation per pre-Reagan, reintroducing bracket creep which acts as an automatic tax increase for not only the “evil” rich but for the lower brackets as well?
Also be mindful of the fact that by reverting to the more complex pre-Reagan tax code you will increase the amount of deadweight loss on a struggling economy because of increased costs from tax preparation.
@coyote … Yes, all those things are needed to restore the middle class to pre-Reagan status. Also, a bankruptcy should include credit card and school loan debt as it was before the uber-wealthy got a “hand up” from Republican campaign-donation solicitation.
cory’s headlines tell quite a story, at least in SD. As piketty strugllees to i.d. rationale for his decade long statistical portrait of the 1%, .1% and .01%, we see the Regents, NSU and SDSM&T, for example, used as devices by the rich to manipulate state captive republican government to insulate wealth of the masses for their own use with little oversight or integrity. infrastructure (“you didn’t build that”) appears abandoned in a mad rush of Koch monopolization of little state’s initiative /referendum laws.
piketty apparently says more american males draw work disability than manufacture production. l.h. summers,democracy journal #33, 2014. the injured workers’ family then languishes at the bottom, american dream donated to the cause, while uninjured bill gates or trump “move on”, perhaps to the next corporate bankruptcy privilege.