NEW YORK, Nov 27 — While Gabriel Zucman and Emmanuel Saez may not have invented the wealth tax, proposals by Democratic presidential candidates to raise taxes on the wealthy owe much to these two French economists.
In The Triumph of Injustice, published in October, they make a stunning observation: American billionaires are subject to a lower effective tax rate — 23 per cent on average — than the rest of the country, which pays 28 per cent.
But decades ago, they point out, the US tax system was one of the most progressive in the Western world — meaning tax rates rose as incomes got higher.
The book also proposes solutions that the left wing of the Democratic Party has jumped on in the heat of the battle for the presidency next year.
“We had more influence on the Bernie Sanders plan than on Elizabeth Warren’s,” said Gabriel Zucman, 33, professor of economics at the University of California, Berkeley.
“He basically said to us ‘make me a plan’ after she released her wealth tax. He wanted to go even further.”
“The Warren plan was jointly produced with her team. She knew what she wanted. We added our technical expertise,” Zucman added during an interview in his office overlooking the campus not far from San Francisco.
Warren and Sanders occupy the most left-leaning lanes in the Democratic primary and have made taxing the rich to redistribute wealth central planks of their campaigns.
On their websites, both candidates have published a Zucman-Saez assessment of their wealth tax plans.
The pair’s ties to Sanders date at least as far back as his prior presidential run when Warren Gunnels, a Sanders advisor, reached out.
Zucman and Saez hail from a school of French economists that is increasingly popular in the United States. It includes names like Esther Duflo of the Massachusetts Institute of Technology, who in October shared the Nobel Prize in economics, and Thomas Piketty, author of the best-selling tome Capital in the Twenty-First Century.
They see themselves as “plumber economists”, to use Duflo’s term.
“In the tax system, there is leakage, evasion and avoidance,” said Zucman. “Economists can explain how to control the plumbing so that income taxes function properly.”
“With all taxes taken into account, the Donald Trumps, Jeff Bezoses, Mark Zuckerbergs and Warren Buffetts of the world have effective tax rates that are lower than those of their secretaries,” he added.
Four decades of flat wages
How did we get here? By sliding from a system that was once based on wealth redistribution — which taxed inheritances at as much as 77 per cent and the highest incomes up to 90 per cent — to that unveiled under President Ronald Reagan, which sunk even lower under Trump.
In the years since Reagan’s famous speech of 1981 — “government is not the solution to our problem, government is the problem” — incomes for the wealthiest have boomed while they have stagnated for workers.
“In 1980, the average pre-tax income for adults in the bottom half of the income distribution was US$18,000 (RM75,096) a year,” he said, adding that today, adjusted for inflation, that figure is now US$18,500.
According to Emmanuel Saez, the United States is the main laboratory for such research.
“When you work on inequality, this is the place to be. No Western country has experienced as big an increase in inequality as the United States,” he said in the neighbouring office.
He invited his young colleague to Berkeley in 2013. Both want to make clear contributions to public policy.
“It’s rather unusual for two major candidates to seriously consider our proposals,” said Saez, 47.
But to make such radical campaign pledges is to do battle with Americans who still liken social democracy to Soviet communism.
“As soon as there’s a progressive proposal or innovation on taxes, a wave of economists rises up saying this is the end of the American miracle and of the robust growth which exists only in their imaginations, or sometimes in their bank accounts,” said Zucman.
Still, the United States was not always allergic to income taxes.
In their book, Zucman and Saez note that in 1970, the richest paid more than half their income in taxes, twice the share paid by working wage earners.
“It is this traditional American tax justice that inspires us,” said Zucman.
“For a long time, there’s been a feeling of despondency, a belief that we can’t do anything and few solid proposals,” he added.
“But tax evasion and competition with tax havens aren’t laws of nature, they are political choices. The book is there to say: Don’t surrender before the battle’s started!” — AFP