For Economists Saez and Piketty, the Buffett Rule Is Just a Start
High earners who are worried that this year’s Tax Day will be the last one before their rates rise have more than just the White House and Washington to blame. They can also look to two academically revered, if publicly obscure, left-leaning French economists whose work is the subtext for the battle over tax fairness.
Emmanuel Saez and Thomas Piketty have spent the last decade tracking the incomes of the poor, the middle class and the rich in countries across the world. More than anything else, their work shows that the top earners in the United States have taken a bigger and bigger share of overall income over the last three decades, with inequality nearly as acute as it was before the Great Depression.
Known in Washington and the economics profession by the of-course-you-know shorthand “Piketty-Saez,” the two have been denounced on the editorial page of The Wall Street Journal and won mention in White House budget documents.
Mr. Saez, a professor at the University of California, Berkeley, has won the John Bates Clark Medal, an economic laurel considered second only to the Nobel, as well as a MacArthur Fellowship grant. Mr. Piketty, 40, of the Paris School of Economics, has won Le Monde’s prize for best young economist, among other awards.
Both admire, even adore, the United States, they say, for its entrepreneurial drive, innovative spirit and, not least, its academic excellence: the two met while re-searchers in Cambridge, Mass. But both also express bewilderment over the current conversation about whether the wealthy, who have taken most of America’s income gains over the last 30 years, should be paying higher taxes.
“The United States is getting accustomed to a completely crazy level of inequality,” Mr. Piketty said, with a degree of wonder. “People say that reducing inequality is radical. I think that tolerating the level of inequality the United States tolerates is radical.”
As much as Mr. Piketty’s and Mr. Saez’s work has informed the national debate over earnings and fairness, their proposed corrective remains far outside the bounds of polite political conversation: much, much higher top marginal tax rates on the rich, up to 50 percent, or 70 percent or even 90 percent, from the current top rate of 35 percent.
The two economists argue that even Democrats’ boldest plan to increase taxes on the wealthy — the Buffett Rule, a 30 percent minimum tax on earnings over $1 million — would do little to reverse the rich’s gains. Many of the Republican tax proposals on the table might increase income inequality, at least in the short term, according to William G. Gale of the Tax Policy Center and many other left-leaning and centrist economists.
Conservatives respond that high tax rates would stifle economic growth, at a minimum, and cause some businesses and high-income workers to flee to other countries. When top American tax rates were much higher, from the 1940s through the 1970s, businesses could not relocate as easily as they can now, say critics of Mr. Piketty and Mr. Saez.
“I materially disagree with the idea you can raise a marginal tax rate to 70 percent and not have an impact on economic growth,” said Ike Brannon, an economist at the American Action Forum. “It’s absurd on its face.”
But Mr. Piketty and Mr. Saez argue that history is on their side: Many countries have higher tax rates — and the United States has had higher tax rates — without stifling growth or encouraging the concentration of income in the hands of the very rich.
“In a way, the United States is becoming like Old Europe, which is very strange in historical perspective,” Mr. Piketty said. “The United States used to be very egalitarian, not just in spirit but in actuality. Inequality of wealth and income used to be much larger in France. And very high taxes on the very rich — that was invented in the United States,” he said.