Felix Salmon, who’s been a top notch writer on the financial crisis, makes the case that when a progressive income tax system is in place, the government has a self-interest in fostering plutocrats:
Remember too that when you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer.Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.
The government’s interests, then, are naturally aligned with those of the plutocrats — and when that happens, the chances of change naturally drop to zero.
Kevin Drum offers evidence that the government has no such incentive, but I think it’s possible to go even further and test Felix’s hypothesis empircally. Using data from the U.S. Census and the Tax Policy Center, I plotted U.S. inequality as measured by the Gini coefficient against the difference between the highest and lowest personal income tax rate brackets, which was my proxy for "progressivity". The results are to the left. As you can see, it’s not the tightest relationship in the world and far from necessarily causal, but it’s also clearly the opposite of what Salmon proposed. Inequality has been steadily marching up since 1968, while the high/low bracket gap dropped precipitously during the 1980s. Progressivity increased sharply in the 1990s, but the growth in inequality didn’t deviate significantly from its previous trend. So while I see the logic in Felix’s post, it’s not borne out by the data.
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Interesting indeed — Google has informed me that progressive taxation began in the US as early as 1798, when fact white landowning men were the only ones effectively voting. (http://connection.ebscohost.com/content/article/1021869691.html;jsessionid=6791C088726BA38214DECA021553D805.ehctc1) Seems to support the Salmon argument.
Interesting. I'd like to see a state-by-state comparison, or perhaps an international comparison. I think that it is definitely true that progressive taxation magnifies business cycles. In the case of California, in good times it is flush with cash from the wealthy, but in bad times (like now) that money disappears. A flat tax would be much less volatile. A millionaire's tax doesn't bring much revenue in during a recession, but a gas tax or sales tax still brings home the bacon, because they are so regressive.