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More evidence of the links between tax and inequality

campbell-lusherThe economists Thomas Piketty, Emmanuel Saez, Facundo Alvaredo and Anthony Atkinson have played a big role in helping analyse and popularise the role that tax rate cuts for wealthy folk play in fostering economic inequality, particularly the income shares of the top 1 percent of people compared to everyone else. As they put it in 2013:

“The evolution of top tax rates is strongly negatively correlated with changes in pre-tax income concentration.”

Their findings have of course been attacked, not least by certain players keen for taxes on wealthy people to stay low.

Now there’s a new US-focused study by Douglas Campbell and Lester Lusher, called Drivers of Inequality: Trade Shocks versus Top Marginal Tax Rates. It seeks to check on these findings:

Corporate tax cuts: why the old analyses don’t stack up any more (did they ever?)

August 23, 2016   Blog

Last month Pascal Saint-Amans, head of tax for the OECD, spoke to the Wall Street Journal, in an article subtitled The argument against taxing capital income relatively more than wages is losing its force. He said:

“For the past 30 years we’ve been saying don’t try to tax capital more because you’ll lose it, you’ll lose investment. Well this argument is dead, so it’s worth revisiting the whole story,” Pascal Saint-Amans, the OECD’s tax chief, said in an interview.”

This particular article came to our attention via the Fair Skat blog, which sketches out the implications – and they are highly significant.  The usual story goes something like this:

Report: parties rely on unsafe top tax estimates in UK election

April 21, 2015   Blog, Inequality & Tax Havens, Reports

Income TaxTax is one of the key battlegrounds in the UK’s general election due on May 7. No tax is more important than the income tax, and debates about the wisdom of cutting or hiking the top rate of income tax seem likely to heat up as polling nears.  Some political parties advocate raising the top tax rate from the current 45 percent, while others think that it’s a good idea to cut rates further, partly in the name of ‘competitiveness’.

Where the parties stand on top income tax rates

The Labour government increased the top income tax rate for anyone earning above £150,000 per year from 40 to 50 percent from April 2010, the first increase since 1974. The coalition government cut the rate to 45 percent in April 2013.

Current manifesto pledges are:

Now TJN publishes a major new analysis of the evidence (press release here), written for TJN by John Thompson, an independent analyst. It shows that the debates on the top rate of income tax hinge on official estimates from HM Revenue and Customs (HMRC,) which were published in 2012 and remain the baseline for judging the revenue effects. Thompson’s report shows that the figures are so uncertain as to be of little or no value in determining tax policy. Although it’s a UK-focused report, his findings are likely to have a wider relevance internationally. As we note in our press release:

Do lower tax rates curb tax cheating? Really?

Median statutory corporate tax rates, by country income group, 1980-2010

Median statutory corporate tax rates, by country income group, 1980-2010. (Source: IMF.)

It’s a good question. Now, an Australian story, via The Guardian:

“Treasurer Joe Hockey has said Australia is “losing control of our destiny from a taxation perspective” because of “holes” in the tax treatment of multinational corporations, as a parliamentary committee prepares to grill global companies about the tax they pay and former tax officials warn that the tax office has lost the expertise to tackle the problem.”

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