CITIZENS UNITED?

From the strict point of view of economic efficiency, therefore, the evidence suggests that nothing stops a government from having a very progressive tax schedule with extremely high top marginal rates.

The difficulty of raising top tax rates is a political one. Indeed, we seem to be in the midst of a vicious cycle of concentration of political and economic power. As the rich become richer, they have more interest and more resources to organize society to stay that way, including financing the campaigns of legislators willing to lower taxes at the top. The “Citizens United” decision of the US Supreme Court, which ruled as unconstitutional legislative limits on corporations’ ability to fund electoral campaigns, has formally legitimized the unlimited power of money in influencing elections.

But it seems unlikely that this state of affairs can continue unfettered without generating a massive backlash. High tax rates on the top earners are already quite popular. Polling data suggest that 51 percent of voters support a marginal tax rate of 70 percent on income above $10 million.⁷⁴ In our survey, more than two-thirds of respondents, who were otherwise not particularly liberal, thought entrepreneurs making more than $430,600 annually (which puts them in the top 1 percent) paid too little in taxes.⁷⁵

To some extent, the recent populist uprising in the United States is the beginning of this backlash. Behind it is a profound sense of disempowerment, a feeling, right or wrong, that the elites always decide, and in any case what they decide makes no difference for the average Joe or Jean. In the United States, Trump, for all his wealth and elite connections, was elected on his promise to undermine business as usual, but the Republicans lined up behind him because they were confident he was as pro-rich as any of them. Indeed he did deliver the tax cut. But it is not clear how long this game of bait and switch can continue without it all exploding. The rich may eventually see that it is in their self-interest to argue for a radical shift toward real sharing of prosperity, or it may end up being imposed on them in even less favorable ways. The reason is that the increase in inequality has been at the root of a deep increase in social anxiety and unhappiness.