Is the U.S. Due for Radically Raising Taxes for the Rich?

In one of the biggest moments of Hillary Clinton’s convention speech, the Democratic nominee promised that under her presidency, “Wall Street, corporations, and the super-rich are going to start paying their fair share of taxes.” The crowd went wild.

This idea, that the wealthiest Americans have been helped along financially by their ability to  shortchange the tax system, is a popular view at a time when the divide between the richest and everyone else continues to grow. According to aGallup poll, 63 percent of Americans say the distribution of money and wealth is unfair, and just over half favor higher taxes on the rich.

It’s clear that many people believe that it’s time to lessen inequality. But what’s the best way to proceed?

“I think it is high time for the U.S. to push up the top tax rate,” Emmanuel Saez, a Berkeley professor who is one of the country’s top experts on wealth accumulation, told me. After all, the top tax rate right now, 39.6 percent, is much lower than the 70 percent rate that existed through much of the period between the 1930s and 1970s, when wealth was more evenly distributed in the United States. This might suggest that if economic equality is truly the goal, perhaps tweaking the tax rate might help.

The trouble is, taxation remains one of the most contested issues in modern political conversation. There are plenty of people who would argue that raising taxes may do more harm than good to the economy. If the rich are taxed more, they may become even more motivated to move their money offshore or to accounts where it can’t be tracked. That could mean less revenue for the government and government services in the end. And if the wealthy aren’t making, or keeping as much money—some say—the result could be a reduction in economic activity, with less capital available for entrepreneurship, leading to lower rates of business formation and fewer jobs. If true, that would be bad for the entire economy, especially low-wage earners. ...