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Thursday, December 12, 2019


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.


s. wallerstein said...

It seems positive that non-Marxists criticize capitalism too. Marxists need all the allies that come their way.

Anyway, there is more than one way to look at any given social phenomenon, in this case, contemporary capitalism, and new perspectives on capitalism, as long as they are critical and are moving in the same direction as Marxists are, are helpful.

Christopher J. Mulvaney, Ph.D. said...

Thank you for that wonderful review. I can safely now assume that I don't have to read it!

marcel proust said...

Beware -- here comes the cavilry!

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.

The repeal began with JFK, following recommendations of his liberal Council of Economic Advisors (which included the most Keynesian macro-economist of the day, James Tobin), that cuts to marginal tax rates would "get the economy moving again." The belief was that the 3 recessions during Eisenhower's 8 years as president indicated that something was amiss, and the question was how to raise the rate of GDP growth. This tax cut was used to justify the Reagan-Laffer cuts: the first worked so well, a second will be even better!!!

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.

The high marginal taxes were very much a product of the depression and the war.

As can be seen at that link (same as this one), rates the top marginal rate rose from 25% in the 1920s and early 30s to more than 70% during the mid 30s, to more than 90% during WW2, where it stayed until 1964. Tax law takes time to change esp. absent an emergency, so the origins of the changes are often a couple of years before the changes manifest themselves in the historical record.

Colin Brown said...

Saez and Zucman have a website where you can actually model tax policy:

This is an extremely useful tool if you want to analyze and debate tax policy.

You can specify the wealth tax rates, personal income tax rates, effective corporate tax rate, estate tax rate, tax-funded health insurance (i.e. Medicare for All), etc.

You can also compare the current tax system (Trump's) to the tax plans of Biden, Warren, Sanders, and Saez/Zucman.

Overall, the most progressive tax plans are (in ranked order):
1. Sanders
2. Saez/Zucman
3. Warren
4. Biden

By “most progressive,” I mean having the highest effective tax rate on the Top 400 richest people, based on income.

I came up with my own, fairly moderate tax plan that still provides $493.2 billion in net surplus. In comparison, Sanders' plan provides $489.4 billion in net surplus, and Saez/Zucman's plan provides $215.2 billion.

Here are the parameters for my “moderate” plan:

Wealth tax:
Less than $50 million = 0%
$50 million to $1 billion = 1%
$1 billion or more = 2%
Evasion rate = 15%

Proposed national income tax rate = 0%
Proposed estate tax rate = 25% [significantly reduced from the current 40%]
Proposed estate tax avoidance rate = 40%

Eliminate sales tax = FALSE
Proposed effective corporate tax rate = 16% [current]
Better taxation of multinationals = TRUE

Income tax brackets and rates:
$0 = 12%
$77k = 22%
$165k = 24%
$315k = 32%
$400k = 37%
$600k+ = 45%

Tax capital gains fully = TRUE
Tax dividend gains fully = TRUE
Integrate with corporate tax = TRUE

Value added tax rate = 0%
Include health insurance in total taxes = TRUE
Fund health insurance with taxes = FALSE [no Medicare for All; you can easily change this]

In short, my plan has a 1-2% wealth tax rate, a 45% top marginal income tax rate, a significantly reduced 25% estate tax rate, no change in the effective corporate income tax, better taxation on multinationals, and full taxation on capital gains and dividends.

And it leads to an effective tax rate of roughly 50% on the Top 400 richest people and $493.2 billion in net surplus ($5.9 trillion over 10 years).

Overall, I think this is a pretty good plan. It provides tons of revenue, and it has a reasonable chance of getting buy-in from the plutocrats and centrists, unlike Sanders’ plan.

David said...

As much as I appreciated and enjoyed Piketty's Capital in the 21st Century, I wondered how valid his various future scenarios would be in light of the possible catastrophic consequences of climate change. If worse comes to worst, will growing wealth inequality really continue apace?

TheDudeDiogenes said...

It seems probable to me that the authors will reach a wider audience with the book as it is, than they would have, had they invoked Marx.

David Palmeter said...


It looks like Labor was soundly defeated yesterday in Britain. They ran on a very left agenda and got clobbered. It looks like more than Brexit, which was always about 50/50. This doesn't auger well or Sanders/Warren.

LFC said...

Unlike David Palmeter, I doubt the UK election result has any particular consequences for U.S. politics. Quite different issues and pol. systems, and Corbyn apparently was just not v. popular. That's not to say that Sanders or Warren nec. would beat Trump, but I don't think the UK result makes that more (or less) likely.

Charles Pigden said...

'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.'

Surely that is supposed to be true of Europe rather than the US. In Europe there was a massive destruction of wealth and hence of inheritable wealth. Not so in the US which escaped WW2 relatively unscathed.

Charles Pigden said...

Of course one of the expected effects of climate change will be a massive destruction of wealth and hence of inheritable wealth. Farms will dry up and will become financially worthless, coastlands will flood destroying property values and forests will burn sharply reducing the value of forestry investments. Moreover if we collectively summon up the will and the wit to restrict the consumption of fossil fuels this will effectively destroy the wealth of those who control the relevant resources. A coal seam which cannot be mined or an oil field from which oil cannot be extracted is it coal seam or an oil field which might as well have been destroyed from the coal-owners or the oil-owners point of view. However, I don't see either climate change or ameliorative policies designed to mitigate its worst effects as likely to lead to a rerun of les trente glorieueses.

Danny said...

I think that such as 'the profit rate exceeds the growth rate' as per Piketty, is just gobbledygook. But that I think so is relevant, maybe, only in that there are of course people who think so, and everybody already knows that. Piketty derives a grand theory of capital and inequality, not everybody buys this, but some people do. I think rather than quibbling about details to be found in Emmanuel Saez and Gabriel Zucman or such, the point, for me, would be that we are at least clear on what counts as real, mainstream economics, and what does not count as such. I get the appeal, of the idea that billionaires should be taxed out of existence. But this stuff is not really within mainstream, classical economics. Who, by the way, is happy to explain the underlying cause of the 2008 bank catastrophe, while he is at it. I might mock him as the French heartthrob economist, but the point is, even it is it Nobel-prize worthy stuff, it's not Nobel prize stuff. Personally I think I see overall incoherence in it, but I will only trouble to point out that such arguments are out there if you're curious, and let's not, at the very least, kid ourselves abot the breech in the wall of the neoclassical orthodoxy that this represents.