Could More Progressive Taxes Increase Income Inequality?

&gt;Our measure of income inequality is the difference between the 50th and 99th percentiles of the income distribution. We used this as our measure of income inequality as opposed to the more standard Gini coefficient2 because the tax incidence on very low-income quantiles is typically small.<p>Or is it because if they don&#x27;t restrict the data to 50th percentile and above, the data doesn&#x27;t fit the story they want to tell?<p>It&#x27;s also weird that they treat spending as intrinsically dependent on taxes when for all intents and purposes, it&#x27;s independent.<p>Many of those variables are easily tweaked (e.g. government spending) and many of them vary enough that performing the experiment over a different time period could very well mean getting the exact opposite result.

&gt; <i>We found that an increase in tax progressivity actually increases income inequality.</i><p>It seems odd that they are making a general and unbounded statement, when it is provably nonsensical.<p>Consider what would happen if the government tomorrow reduced taxes on the middle class and increased taxes on the wealthy to compensate. The middle class would see a rise in their disposable income. According to this paper, because taxes are now slightly more progressive, income inequality would rise. Which means that the wealthy must see an even larger rise in their disposable income. Meanwhile, government revenues remain neutral. Literally everyone wins.<p>We have now found a perpetual motion engine for creating wealth. We can now repeat the above process over and over again, until middle class taxes hit 0%. And literally everyone would keep getting richer in the process, without any impact on government revenues.<p>Clearly the above is nonsensical. There must be significant constraints on the statement that <i>&quot;an increase in tax progressivity actually increases income inequality&quot;</i>

Despite having a wide range of top marginal tax rates in the US (from 90%+ in the 50s to mid 30s today), tax revenue as a percentage of GDP has stayed remarkably constant since post-WW2 (~19%) [0].<p>It&#x27;s not as simple as looking at the top rate, but you have to look at deductions, the caps, lower rates, etc. But I don&#x27;t think there is a clear line between tax rates and taxes paid. There&#x27;s likely an equilibrium rate that people will pay at which point tax aversion strategies make more sense. For instance, as I hit a higher tax bracket, I&#x27;ve invested more in pre-tax retirement, education and health savings accounts. Wealthier individuals have even more options.<p>So looking at marginal tax rates is a kind of red-herring.<p>[0] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Hauser%27s_law" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Hauser%27s_law</a>

Progressive taxes harm the middle class whilst the rich figure out ways to avoid them. If you want the average person to do well, you should support a flat tax.

The solution then, based on their final conclusion, would be to distribute ownership of the capital instead of having it be concentrated to a small number of people. Sounds a bit like both the stock market and communism.<p>Edit: Seems like some people think otherwise. Would love to hear your thoughts.

Jackson and Owyang,<p>Please respond here if Biden Administration puts pressure on you to not publish findings like this in the future. No, I&#x27;m not into conspiracy theories, but this finding does impress me as something the Democratic party would like to suppress.

Taxes are unnecessary in any country with fiat currency. This is plainly evident by the complete lack of correlation between tax revenues and government spending. The government can simply create as much money as it needs. Taxes exist only to track and control the citizenry.