Rogoff fails to connect the dots

Ken Rogoff gets off to a good start on the topic of inequality and the super-rich (by way of explaining the world to his 11-year-old son) in this Guardian column:

The latest Forbes list of America’s wealthiest individuals showed that last year’s highest nine earners, whose ranks include New York City’s mayor, Michael Bloomberg, managed to increase their wealth by $5-9bn last year. Yes, that is just the annual increase in their wealth. Collectively, their $55bn in earnings outstripped the entire national income of more than 100 countries.

To put these astronomical numbers in perspective, I had Gabriel try to confirm that to be among the top nine earners in the US, you had to pull in at least $150 per second, including time spent eating and sleeping. That is $9,000 per minute, or $540,000 per hour.

How much do America’s highest income earners make compared to the world’s billion poorest individuals? Well, if the top nine donated their earnings, it would be the equivalent of about three months’ income for the bottom billion.

But then he comes up with a really lame policy conclusion that would actually make the problem worse:

Anyway, there are limits to how much tax pressure the political system can apply to the ultra-rich. Consider that any of the top nine American earners make more in two days than leading US presidential candidate Hillary Clinton raises for her campaign in a good quarter of the year.

Rather than punitively taxing wealth, globalisation strengthens the case for shifting to a flat tax on income (or better yet consumption) with a moderately high exemption. Aside from the usual efficiency arguments, it is just going to become increasingly difficult and costly to maintain complex and idiosyncratic national tax arrangements.

The empirical case for a move to a flat income tax is astonishingly weak. Ditto for shifting from income to consumption taxes. Rogoff misses out on the fact that a flat tax would only make the underlying problem worse. And the super-rich he mentions at the top of his column are not going to change their behaviour in the face of more steeply progressive income tax rates.

One comment

  • Given Rogoff’s background what do you expect:
    Kenneth Rogoff is professor of economics and public policy at Harvard University, and was formerly chief economist at the IMF.

    The relative deprivation of a flat tax upon the poor would be much greater than on the rich. A progressive tax is much fairer but Rogoff could care less the flat tax is supposedly more efficient whatever that is supposed to mean. Sometimes I think “efficiency” is a four letter word!

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