We're going to have having an event at the CUNY Graduate with Saez and Zucman about their fantastic new book, and I'm trying to get my own thinking clear, especially about some of the technical controversies. So here's a brief thread 1/ nytimes.com/2019/10/11/opi…
The important thing to say is that SZ's core result — that we've seen a drastic and unnecessary reduction in the progressively of the tax system — is rock-solid. In particular, taxes on capita income are way down, while taxes on labor income are up 2/
The controversy involves their eye-popping claim that the current tax system isn't progressive at all — that's it's actually sort of flat except at the top, where it's regressive. 3/
To get this result, they departed somewhat from standard practice, in ways that are both defensible and somewhat arguable. First, they decided to focus only on taxes, not the tax-and-transfer system we actually have 4/
And their definition of what counts as transfers and therefore doesn't enter their analysis is unusually broad. EITC and refundable credits are excluded from the analysis rather than deducted from working-class taxes, even if workers pay more in payroll tax than they receive 5/
Second, they avoided any analysis of incidence, adhering to what we used to call the flypaper theory of taxes — they stay where they're put (maybe these days call it the Post-It Note theory) In particular, all corporate taxes are considered to fall on stockholders 6/
But they consider the employer share of the payroll tax a tax on workers, even though corporations pay it. I think everyone agrees that this is right in terms of the incidence — it gets passed thru into lower wages. But weren't we avoiding considering incidence? 7/
I guess my point is that excluding transfers and consideration of incidence sound like rigorous criteria, but are actually more problematic, involving more judgement calls, than they seem 8/
And the thing is that ultimately we shouldn't care about these definitional questions. What we want to know is how the whole tax-and-transfer system affects inequality. 9/
And I don't think there's much question about the answer to that question. Overall, our fiscal system reduces inequality — a bit— largely thanks to transfer payments at the bottom. But it reduces inequality much less than it used to, thanks to tax cuts at the top 10/
Saez and Zucman make this point brilliantly, and also tell us a lot about how that happened. So the important thing is not to get too hung up on the technical disputes. The core SZ insight is totally robust 11/
