Sunday, April 5, 2009

Taxes over time and up and down the income distribution

A remarkably good piece from MSNBC that (not a coincidence?) features Michigan's own Joel Slemrod, as well as Emanuel Saez and Thomas Piketty.

Of course, I do have a few comments:

First, MSNBC neglects to note that tax rates impact the size of the economic pie. Top marginal rates were a lot higher in 1960 and it does not take much imagination to think that reducing them is part of what led to the increase in measured incomes in the top percentiles of the distrubtion.

Second, MSNBC forgets all the increases in future taxes that have been accumulating over the period in question in the form of government debt. Someone does have to pay these taxes eventually, whether via income taxes, payroll taxes, excise taxes or taxes on cash balances (i.e. inflation).

Third, I suspect that the relative decline in excise taxes has served to increase the progressivity of the system. Surely someone has considered this in the literature; it would have been nice to learn about that research in the article.

Fourth, the normative pitch (you missed the flashing "author's message" at that point?) for additoinal progressivity (or, if you prefer, disproportionality) did not fit well with the rest of the piece. It would have made the article stronger for the author to just stick to the facts.

Still, pretty useful stuff for MSNBC. Good for making clear how much of the burden is borne by those with high incomes and also at illustrating some of the basic patterns over time in what get taxed.