Oh Dear, Rutger Bregman At Davos Is Ignorant Of Hauser’s Law – High Tax Rates Make No Difference

We’ve an historian, Rutger Bregman, sounding off at Davos and there’s a certain problem with his point about high tax rates. For he seems to think that having high rates means more money is collected – this is not so. It’s especially not so concerning the United States which is a bit difficult as it is the United States he uses as his example. What happens is that what he thinks he knows runs smack into empirical reality in the form of Hauser’s Law. This isn’t a good look for those who would try to tell us how the world should be run.

We can imagine how he’s going to make his point …”the rich just not paying their fair share”….”top marginal rate of 70% has actually worked”…..”the US in the 1950s”….”top marginal rate of 91%”…..all the rest is bulls**t in my opinion.

Actually, don’t marvel at how bad my transcription is, watch it:

And here’s the problem. Hauser’s Law. Pretty much whatever anyone does the Federal tax take doesn’t rise above about 20% of GDP. And it’s not true that those high marginal tax rates of the 1950s did much, even anything, to get that tax take up.

Marginal tax rates don’t seem to make much difference to revenues

There’s also this:

A discussion panel at the Davos World Economic Forum has become a sensation after a Dutch historian took billionaires to task for not paying taxes. In a video shared tens of thousands of times, Rutger Bregman, author of the book Utopia for Realists, bemoans the failure of attendees at the recent gathering in Switzerland to address the key issue in the battle for greater equality: the failure of rich people to pay their fair share of taxes.

Well, fair share, fair is a flexible concept.

But the problems with Oxfam’s report run deeper. Their assumption that the rich should be paying their fair share sounds sensible enough. Adam Smith made a similar argument. But, contrary to Oxfam’s claims, this is exactly how our tax system already works. In the UK the top 1 per cent pay 28 per cent of all income tax, the top 50 per cent pay 90 per cent. And yes, these numbers are higher than they were a decade or two ago. No, we can’t say that this is because the top 1 per cent gain more than 28 per cent of all income because they don’t. The same is roughly true for the US, where the top 1 per cent gain about 20 per cent of all income and pay 39 per cent of all income tax. Across the rich world, tax systems are heavily weighted towards those better off paying disproportionately more into the common pot. It’s at least arguable that we already tick the “fair share” box that Oxfam are so worried about.

Whether you agree with that or not will depend upon your definition of fair. But we’d like to see your working.

My own definition of fair probably runs along this most simplistic line. Those on less than median incomes shouldn’t see their incomes taxed to pay for the state. Those on more should carry the entire burden of – as far as taxation of income is concerned – paying for said state. Squeeze dem rich until dem pips squeak. Or at least until we’ve maximised the revenue we’re going to get from them.

We know where the Laffer Curve peak is, 54% taxes upon income. Which includes employee and employer social security contributions, that’s taxes upon income, not just income tax.

Thus we get, for the UK, a merged income and national insurance system which has a £25,000 a year tax free allowance and then a 50% combined rate on all above that. That is, a little but not much lower than we currently charge as our higher rate. 35% income tax, maybe 38 or 39% before we add in NI.

That’s very much rule of thumb and will, obviously, lead to a rather smaller state than we’ve got now. But I’m cool with that for I do indeed think the taxation system should be fair and that the rich should be paying their fair share.

Remember, it isn’t true that fair and more are synonyms.

 

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The point isn’t to collect more taxes. The point is to create a tax structure that inhibits one’s prospects of becoming very rich.