Tags: Robert Shiller | taxes | income | inequality

Yale's Robert Shiller: Raise Taxes on Wealthy If Income Inequality Increases

By    |   Monday, 14 April 2014 01:06 PM

The tax system should be changed to avoid a worsening of income inequality, says Nobel laureate economist Robert Shiller of Yale University.

The top 1 percent of households garner 19 percent of the country's income now, up from 8 percent in the 1970s, according to economists Thomas Piketty and Emmanuel Saez.

"Taxes should be indexed to income inequality so that they automatically become more progressive — meaning that the marginal tax rate for the highest-income people will rise — if income inequality becomes much worse," Shiller writes in The New York Times.

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It's "clear that while income inequality would be much worse without our current tax system, what we have isn't nearly enough. It's time — past time, actually — to tweak the system so that it can respond effectively if income inequality becomes more extreme," he notes.

"There is a practical reason for starting now. If we wait until income inequality is much more severe, we will have a whole class of new superrich who will probably feel entitled to their wealth and will have the means to defend their interest."

Another reason to act now is that people are more generous when contemplating the future than they are dealing with the present, Shiller argues. "That's why it pays to ask people to decide on measures to uphold egalitarian ideals when they don't have to cough up the money immediately."

Shiller maintains one solution is to integrate inequality indexing with inflation indexing, as proposed by Leonard Burman, director of the Urban-Brookings Tax Policy Center.

"Instead of just linking tax brackets to inflation as measured by the Consumer Price Index, as we have done for years, he proposed that the adjustments also take account of rising inequality, if it occurred," Shiller explains.

As for the non-wealthy it's not so much that they begrudge the riches of the wealthy, writes Washington Post columnist Catherine Rampell.

"It's the growing wealth of the wealthy set against the stagnation or deterioration of living standards for everyone else," she says. "Polls show that Americans pretty much always want income to be distributed more equitably than it currently is, but they're more willing to tolerate inequality if they are still plugging ahead."

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The tax system should be changed to avoid a worsening of income inequality, says Nobel laureate economist Robert Shiller of Yale University.
Robert Shiller, taxes, income, inequality
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2014-06-14
Monday, 14 April 2014 01:06 PM
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