A Closer Look

It’s the economy, not the taxe code, which generates inequalities

The economic framework that has recently defined our politics should be replaced by a new narrative writes William A. Galston, one that runs as follows: In recent decades, changes in the structure of our economy and politics have created a dramatic increase in income inequality; while changes in our tax code did not contribute materially to this increase, they did nothing to mitigate it; if we want to use taxation to reduce this alarming gap between the top and the rest of us, we’ll have to broaden the debate far beyond its current bounds.

This is precisely the conclusion that the Nobel prize-winning economist Peter Diamond has reached. In a recent New York Times interview, he put it this way: “The debate in Washington is between the Bush-era and Clinton-era tax rates. [It] should be between the pre-1986 Reagan [top] tax rate, which was 50 percent, and the rates that existed from Johnson until Reagan,” which were higher.

This may strike some readers as the basis of a renewed fighting creed for liberals. It may strike others as demonstrating the need to moderate our hopes for tax reform as a way of reducing inequality and look in other directions for policies that can improve the well-being of middle and working-class households. (You may not be surprised to learn that I incline toward the latter view.)

Source:

Read more @ Stop Blaming the Tax Code For America’s Inequality Problem – Brookings Institution.

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