TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, April 21, 2014

The Case for Confiscatory Taxation: 90% Rate on Estates, Income Over $10 Million

Vox:  Beyond the Laffer Curve — The Case for Confiscatory Taxation, by Matthew Yglesias:

90%The Laffer Curve — the idea that tax cuts can sometimes increase tax revenue — is one of the most influential and widely debated ideas in the past two generations of American politics. Beloved by the right and despised by the left, one thing that both sides have tended to agree on is that knowing what side of the curve we're on should be a key driver of tax policy. But in an era of surging inequality, it's time to revisit that assumption. Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends.

We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. And since cigarettes are about the most-taxed thing in America, we certainly would want to cut out all our other anti-smoking initiatives. But we don't do that because we care about public health. We tax tobacco not to make money but to discourage smoking.

The same is true of widely discussed proposals to tax carbon dioxide and other greenhouse gas emissions. The goal here wouldn't be to maximize tax revenue, it would be to reduce pollution. The revenue would be a pleasant side effect.

If we take seriously the idea that endlessly growing inequality can have a cancerous effect on our democracy, we should consider it for top incomes as well.

With the growing concentration of wealth an increasing subject of public concern, it's time to reconsider whether the application of Laffer-style reasoning to very prosperous individuals is appropriate.

Imposing a marginal tax rate of 90 percent on inheritances worth over $10 million, for example, would probably raise very little revenue. Rather than pay $90 to Uncle Sam for the chance to send $10 more to their kids, rich people would give the money to a tax-exempt charitable institution instead. That wouldn't help balance the budget — in fact, it would hurt those efforts — but it would help break the doom loop of oligarachy whereby concentrated wealth breeds political power breeds greater concentration of wealth.

Even more intriguing would be to apply the same principle of taxation-as-deterrence to very high levels of income. ... Imagine a world in which we ... imposed a 90 percent marginal tax rate on salaries above $10 million

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