[Ed. – Oy to the veh, get some new material, people. I do enjoy this idea of “catastrophic” income inequality. What exactly will the catastrophe be?]
In a New York Times op-ed that ran on Sunday, Robert Shiller, winner of the Nobel Prize in economics last year, warned that income inequality might rise to catastrophic levels—in effect, aligning himself with Cowen, Brynjolfsson, and others who say the trend is likely to continue. But Shiller also introduced a new idea: A change in income tax brackets, designed to take place only if inequality reached certain heights. He hasn’t laid out many specifics of how it would work. But the basic idea is that government would stop adjusting the highest-income tax brackets for inflation. Over time, more and more of their income would be subject to the highest tax rates. (Policy makers call this “bracket creep.”) This would generate additional revenue, which Shiller proposes to spend on an expansion of the Earned Income Tax Credit (EITC) or other tax breaks targeted towards the lower- and middle-class.
DV: Can you talk about your plan to index tax brackets to a form of inequality?
RS: In my 2003 book, I presented a rather extreme version, which was that we would just lock in the current inequality or let it get a little better. If it gets better, then we won’t do anything. But we won’t let it get worse. Then it was in 2006 that I did a paper with Len Burman where we estimated what would’ve happened if such a rule had been in place in 1979. The problem is that inequality has gotten a lot worse since 1979. We’d have to raise tax brackets really high on the rich.
DV: Tax brackets or tax rates?
RS: Tax rates. It’d have to be over 75 percent on high income. It’s technically raising taxes in terms of rates, but it’s not raising taxes in terms of outcomes. I thought maybe it could be reframed that way and be acceptable.
Continue reading → [If you can’t write the rest of it yourself without peeking… – Ed.]