I have now finished reading The Triumph of Injustice by Emmanuel Saez and Gabriel Zucman and I want to spend a little time telling you about it. As I mentioned, it is most immediately a quite accessible scholarly defense of the wealth tax on the rich proposed by Sanders and Warren. The effects of such a tax on the wealth of the superrich would be quite remarkable. Mark Zuckerberg, a recent billionaire, would have been worth 21 billion in 2018 rather than 61 billion, had the Sanders/Warren tax been in place in recent decades, and Bill Gates, a “mature” billionaire, would be worth 4 billion instead of 97 billion. Not exactly peanuts!
The framework of the Saez/Zucman book is the analysis laid out by Thomas Piketty in his Capital in the 21st Century, the 2014 work which I discussed on this blog when it appeared. Piketty’s most surprising finding is that the generation-long period of relatively lower inequality in wealth and income after World War II in virtually all advanced capitalist national economies, was not, as American mainstream economists claimed, an evidence of a new phase of development of mature capitalism, but was in fact a temporary anomaly caused by the enormous destruction and dislocation of the Great Depression and the war. Piketty’s data demonstrate that the centuries-long accumulation of ever greater concentrations of wealth has already resumed, after what the French call les trentes glorieuses, with inherited wealth again dominating the fundamental structure of capitalist economies. The underlying cause of the ever greater accumulation of private wealth, according to Piketty, is the simple fact that the profit rate exceeds the growth rate. The portion of profit not devoted to expanding the scope of production [i.e. to growth] goes into the pockets of the capitalists, who, unable despite their best efforts to consume it unproductively, instead save it, become steadily richer.
Saez and Gutman operate within this framework [with one momentary lapse, which I shall discuss later.] But as they demonstrate, the precise shape and extent of economic inequality is powerfully influenced by national tax policies. The authors remind readers that in the forty-five years between the depths of the Great Depression and the onset of the Reagan Revolution, taxes on high incomes and on estates in the United States were dramatically higher than in the fifty years since. During that earlier time, economic growth was actually more robust and working class Americans did much better, year after year, decade after decade, than during the virtual stagnation of working class incomes, along with the explosive growth of the income and wealth of the super-rich, in the past half century.
The authors use the basic analytical framework of income distribution laid out by Piketty and developed further in the 2018 journal article by themselves and Piketty, also discussed on this blog. Recall that this framework distinguishes three classes in America, and within the richest class makes further subdivisions: the three classes are the Working Class, which is the bottom fifty percent, the Middle Class, which is the 51st to 90th percentile, and the Upper Class, the richest 10%. So extreme has been the enrichment of the rich that the authors find it useful to further study the richest 1%, the richest 1/10 of 1%, and even the richest 1/100 of 1% [which is to say, the richest 3,300 men, women, and children in this country!]
Much of the first two-thirds of the short book is devoted essentially to detailing the effects of the extremely high marginal tax rates that were instituted under the New Deal and eventually repealed after 1980 by Republican and Democratic Presidents and Congresses alike. I found the book a trifle sleepy until page 162, when it suddenly exploded with astonishing data. Since I do not know how to reproduce graphs on this blog, let me try to summarize the results I found so striking. In a chapter entitled “Beyond Laffer” [I shall return to him in a moment], Saez and Zucman report the following data:
From 1946-1980, at a time when the progressive income tax was virtually confiscatory at the highest levels, real growth in income was 2% or a trifle over for every income percentile in America including the poorest, save for those at the very top, whose income growth dropped to 1.5% or even lower for the very very richest Americans. From 1980 to 2018, when the top rates were drastically cut on income and profits, the picture changes dramatically. The growth rate for the entire population falls to 1.4%. For the poorest 20%, it is actually negative. For everyone save the top 10%, the annual growth rate is below the average 1.4%. Only the top ten percent reach or exceed that level, and for the top 1%, the annual growth rate over those 38 years rises, reahcing 5% for those richest 0.01% folks.
In other words, when the top rates were as high as they have ever been, everyone did well, experiencing a doubling of real income over 34 years, save for those at top, whose income growth, while positive, was much slower.
Arthur Laffer, in 1974, drew a curve on a napkin with a pen and claimed to have shown that raising the tax rate would reduce revenues, because the higher levels of taxes would dissuade business men [they were pretty much all men then] from expanding their investments, and would actually cause them to contract their investments. Well, he was right of course in theory. A 100% tax rate probably would have a dampening effect on all but those investors who are in it merely for the fun. But lacking any actual data, Laffer drew the curve in such a way that it seemed to suggest that any raising of the existing rate would be counterproductive. The Saez Zucman data put the lie to that claim, which has been invoked ever since by so-called supply side tax cutters to justify putting more money in the pockets of the rich. The high rates hurt the rich, to be sure, but they do not hurt anyone else. Indeed, the evidence suggests the opposite.
Now one niggling cavil [if indeed a cavil can niggle.] On page 156, the authors write: “The policy of quasi-confiscatory tax rates for sky-high incomes, according to the available evidence, achieved its objective. From the late 1930s to the early 1970s, income inequality fell.” But if Piketty is right, that swoon in inequality was not primarily the result of egalitarian tax policy. It was the consequence of the depression and the war.
At any rate, the next time some sensible hard-headed centrist tells you the Sanders/Warren wealth tax would be the death of capitalism, just slap a copy of this book on the table and say, in your most belligerent tone, OH YEAH?
One final note. The fateful words “Karl Marx” and their many variations appear nowhere in the book. You can’t have everything.