![]() ![]() In recent research ( Piketty et al 2011), we analyse this issue both conceptually and empirically using international evidence on top incomes and top tax rates since the 1970s.įigure 1 shows that there is indeed a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares from 1975–79 to 2004–08 across 18 OECD countries for which top income share information is available. But, of course, this simple calculation is static and such a large increase in taxes may well affect the economic behaviour of the rich and the income they report pre-tax, the broader economy, and ultimately the tax revenue generated. For example, doubling the average US individual income tax rate on the top 1% income earners from the current 22.5% level to 45% would increase tax revenue by 2.7% of GDP per year, 1 as much as letting all of the Bush tax cuts expire. The potential tax revenue at stake is now very large. For example, top marginal income tax rates in the United States or the United Kingdom were above 70% in the 1970s before the Reagan and Thatcher revolutions drastically cut them by 40 percentage points within a decade.Īt a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. ![]() Other OECD countries such as those in continental Europe or Japan have seen far less concentration of income among the mega rich ( World Top Incomes Database 2011).Īt the same time, top income tax rates on upper income earners have declined significantly since the 1970s in many OECD countries, again particularly in English-speaking ones. Contrary to the widely held view, however, globalisation and new technologies are not to blame. A similar pattern is true of other English-speaking countries. In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled from less than 10% in the 1970s to over 20% today (CBO 2011 and Piketty and Saez 2003). ![]()
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