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The 70% tax solution

Thursday 1 December 2011 - by J. Bradford DeLong / Project Syndicate

There are compelling arguments for raising taxes to 70 per cent for the super rich - in fact, we have a moral obligation to tax them so heavily that we raise the most possible money from them, argues J. Bradford DeLong, professor of economics at the University of California at Berkeley.

Via a circuitous Internet chain - Paul Krugman of Princeton University quoting Mark Thoma of the University of Oregon reading the Journal of Economic Perspectives - I got a copy of an article written by Emmanuel Saez, whose office is 50 feet from mine, on the same corridor, and the Nobel laureate economist Peter Diamond.

Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70 per cent.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez's logic is clear.

The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness.

So, no matter how large a weight we place on their happiness relative to the happiness of others - whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves - we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.

To read this article in full, please visit our partner site, Project Syndicate, by clicking here.

J. Bradford DeLong, a former assistant secretary of the US Treasury, is professor of economics at the University of California at Berkeley and a research associate at the National Bureau for Economic Research.

Copyright: Project Syndicate, 2011.

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