Inequality and the Piketty Accounting Error

The political left’s love affair with steep progressive taxation received an academic boost with the publication of Thomas Piketty’s 2014 bestseller, Capital in the Twenty-First Century. Citing the New Deal era, Mr Piketty proposed a simple explanation and remedy for rising economic inequality: the concentration of income among the top 1% could be mitigated by strategically targeting wealth in the tax system.

Mr. Piketty based his theory on a historical argument from his own empirical work with fellow economist Emmanuel Saez. When Congress and President Franklin D. Roosevelt raised the top marginal tax rate to 91% during the New Deal and World War II, they supposedly broke the concentration of capital stock at the top of the income ladder. Inequality fell to a mid-century low, where it remained until the Reagan tax cuts of the 1980s. The disparity then rebounded, forming a centuries-old U-shaped pattern. So the solution is to bring tax rates back to FDR levels. Inequality and the Piketty Accounting Error

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