AOC and Elizabeth Warren want higher taxes on the rich. Selling that is tricky.

Author(s): 
Publication Type: 
Other Writing
Publication Date: 
April 15, 2019

Kenneth Scheve (@kfscheve) is professor of political science at Stanford University, and David Stasavage (@stasavage) is dean for the social sciences and the Julius Silver professor in the politics department at New York University. They are the authors of the recent book, “Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.” I asked them what their findings meant for current proposals to tax rich people.

It seems intuitive that a majority of democratic citizens would want higher taxes on the rich — after all, most voters aren't rich themselves. You find that it's more complicated. Why?

A person’s wealth only partly explains what they think about progressive taxation. We know from our survey work (here and here) that many low- and middle-income people aren’t eager to see heavy taxes on the rich. The explanation for this has to do with different standards of fairness. Fairness can mean applying an “ability to pay” standard where those with more should pay higher rates because they can better afford to. But fairness can also mean adhering to an “equal treatment” standard, under which, just as everyone in a democracy has one vote, they ought to also all pay the same tax rate. In our book, we show that the debate between ability to pay and equal treatment standards for fairness has been around for 500 years. Once we accept that there are multiple standards for tax fairness, we can better understand why democracies often don’t tax the rich heavily. We can also do so without assuming that middle-class voters who oppose progressive taxation are ignorant or that they mistakenly think they themselves will be rich one day.

Nonetheless, you find that there are historical conditions when democracies have imposed substantial taxes on the rich. What were they?

Yes, this happens when people feel like the rich are getting a free ride in some other way. If government policy favors the rich or disadvantages the poor in one realm, then even a person who believes in equal treatment may agree that the rich ought to be taxed more heavily to compensate. These compensatory fairness considerations can create a broad consensus favoring highly progressive taxes.

Over the past two centuries, the main source of consensus on taxing the rich has been war mobilization and conscription. If labor was being conscripted to fight, then those with capital should be conscripted with higher taxes. For this reason, the two World Wars ushered in an era of unprecedented tax progressivity, with higher income taxes, inheritance taxes and sometimes one-off levies on top wealth holders. The wartime environment is what got us the top marginal income tax rates in excess of 90 percent that people will often refer to today. But the effect of war mobilization was not permanent. After war’s end, the compensatory argument for taxing the rich eventually lost its resonance and new groups pushed for a less progressive tax system.

Read the full piece at The Washington Post