*Finally* an explainer about why the Saez and Zucman effective tax rates chart was flat not just compared to other studies but also their own research. A critical issue is the way capital returns are allocated to different capital owners and to workers. Recommend. Thread follows.
I’m proud of @wwwojtekk, @jmhorp and @jasonfurman for carefully scrutinizing what seemed to be a fairly radical departure from orthodoxy lobbed into the New York Times right in the middle of a Presidential primary featuring wealth taxes at the center. The stakes are high.
The issue of inequality is very important. But we can’t form policy without understanding the state of inequality. Unfortunately it’s very difficult to know precisely: 1) what is the true degree of inequality; and 2) how is the tax burden currently shared across the distribution.
Piketty, Saez and Zucman came up with the brilliant idea to use flows in tax returns combined with observed and assumed rates of return across the distribution to impute peoples’ asset holdings. It’s very clever and careful work that advances our understanding. I teach it.
But this work involves assumptions. Even the peer-reviewed QJE paper has huge gaps pointed out by Auten and Splinter and more recently by Smith, Zidar and Zwick. And these gaps tend to push the results in the opposite direction of Saez and Zucman’s policy prescriptions.
Because this discussion has become so public (NYT and all that) before an academic consensus has been reached, it’s really been much more about priors than facts, with legions of trolls on each side thrashing it out on twitter according to their preference for redistribution.
That has been unhelpful to say the least. Saez is a giant in my field. I’ve read all his papers. He created the foundation for my research agenda. Zucman is young but a well published, tenured professor at Berkeley. These are people, on the face of it, to be taken very seriously.
But, as I tell my students regularly, this whole affair shows that even the best research in the best journals by the best people must be read very skeptically. And very often interpreted with knowledge of the possibly strong priors of those researchers.
I remain quite skeptical of many of the propositions put forward and would personally not feel we have a strong enough hold of the true state of inequality and of the distribution of the tax burden to make a strong recommendation of a large wealth tax to presidential candidates.
Overall, this has been a testament to the value of twitter. In years past, we simply would not have been able to have this conversation. Or it would have been a set of siloed conversations connected to a very slow series of papers and comments in referees journals.
I’ve encouraged all of my students to read Saez and Zucman’s new book, and I will read it myself and maybe provide some comments in due course. I’m glad they’re pushing forward the conversation. But we should all take time to reflect before jumping to conclusions.
And all of this makes me very pleased that I’ll be hosting @wwwojtekk at @GWtweets today where he will be giving a talk on inequality!
