Inequality at MIT

A write-up of a recent conference on inequality at MIT. A few useful numbers and a nice quote from Peter Diamond:

Diamond also pointed to some of his own recent research, with economist Emmanuel Saez of the University of California at Berkeley, which found that the optimal marginal income tax rate on the highest earners — those making $400,000 or more per year — is well above the current 36 percent, or even the 39 percent level that existed during the 1990s.

“The Washington debate right now is between the Bush and Clinton tax rates on the top,” Diamond said. But his work with Saez shows that a more efficient rate for raising revenue — without significantly deterring the wealthy from trying to earn more — is “somewhere between the tax rate at the top in Reagan’s first administration, which was 50 percent, and the tax rate at the top from the Johnson years up to the Reagan change, which was 70 percent.”

I can’t tell from the article whether Diamond is saying that this is best because it will raise the most revenue (ie be at the top of the Laffer Curve), or whether he is suggesting it as a cure for inequality. I take the latter view with high marginal tax rates operating as a Pigovian tax on the negative externalities of high levels of inequality.

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