Leading US Neo Liberals Take on the Case for Taxing the Rich

http://www1.hamiltonproject.org/views/papers/furman/200706summers_bordoff.htm

At the Canadian Economics Association, I presented a paper (to be published by the CCPA Inequality Project this Fall) on the case for more progressive taxation of income. In a nutshell,  my argument was that the tax side of the tax/transfer system must be relied on more to counter growing income inequality, since only the tax side can close the growing gap between the very top and the middle of the income distribution.

As noted in today’s Wall Street Journal, the US neo liberal establishment, the Hamilton Project,  are making sort of the same argument. With only the top making income gains from globalization, the neo liberal project, they argue, can be sustained only by transferring income from  the winners to everybody else.  This paper – co-authored by Larry Summers – is part of a project being co-ordinated by Robert Rubin, former Treasury Secretary to Bill Clinton, a big guy on Wall Street, and ideological leader of the Democratic centre right establishment. They advocate raising top tax rates back to Clinton Administration levels (and it is true but not often noted that Clinton fought the US deficit in large part on the tax rather than spending side, includign through higher taxes on the rich, as opposed to one Paul Martin here in Canada who relied on cuts to spending, including income transfers to the relatively less well-off.)

While a broad consensus in favour of a more progressive income tax is worthy of note and desirable, I hasten to add that we neeed many more policy tools to fix the inequality problem – not least regulated labour markets and the kind of industrial and trade policies which Rubin and Summers emphatically reject.