A new book puts forward this controversial thesis—but the evidence doesn’t quite stack upby Torsten Bell / April 14, 2016 / Leave a comment
Taxing the Rich: A History of Fiscal Fairness in the United States and Europe, Kenneth Scheve and David Stasavage, Princeton University Press, £22.95 Thanks to Panama and its papers, the rich and the tax they do (or don’t) pay is back at the top of the news agenda. Even before the details of thousands of off-shore accounts, companies and investments emerged, the issue of what tax the rich should pay had recently returned to the centre of political debate for the first time since the 1980s.
Dealing with offshore tax havens is as much a matter for international cooperation as it is for domestic policy. But debate about them clearly influences how people view tax rates domestically—as the seamless transition from discussion of avoidance to discussion of inheritance tax proved this week.
In the UK we’ve seen a row about whether the top rate of tax should be 50 or 45 per cent generate more heat than any debate around much bigger tax rises or indeed cuts. While in the US, Bernie Sanders wants to see a return to top tax rates nearing 55 per cent at the same time as Ted Cruz (the “moderate” Republican extremist) argues for a flat rate of income tax set at just 10 per cent.
So this is a good time to discuss a new book—subtly entitled “Taxing the Rich”—from Kenneth Scheve of Stanford and David Stasavage of New York University. Riding the Piketty trend of political economy books with levels of data more common in academic journals, the volume navigates two centuries to explore when and why countries have chosen to tax the rich. Importantly this is not a narrow tax policy book; it draws as much on history and political theory as it does on econometrics. John Stuart Mill and Ronald Dworkin are as central here as James Mirrlees.
So it’s a complex book—but one with a very simple conclusion: high rates of income (and inheritance) tax for the richest households seen across the middle part of the 20th century were not driven by the arrival of universal suffrage, left wing parties winning elections or rising inequality.
Instead they were the product of two World Wars that…