Tuesday, March 15, 2011

Tax Policies Aren't Necessarily Tax Policies

After noting that changes in tax policies might explain the growth of income inequality in these United States, long may humor be her best medicine, Megan McArdle concludes
Explanations involving very US-specific factors, like "culture", our tax policy, or some sort of capture whereby the wealthy have somehow rigged the system in their favor, become much less compelling.  Rising inequality (and slower income growth) have been a rising trend across most of the developed world for three decades.  We need a better explanation than greedier rich people, or stupider politicians.
So it wasn't that greedier rich people supported stupid politicians who changed the tax code in a way that allowed the rich to be open about their richerness it was, as her source put it
However, let's instead assume the post-1986 U.S. trend is an artifact of the 1986 tax reform. 
The "let's assume" bit is, I believe, the way economist think and it is, I think, unfortunate that they think that way. Even if you disagree with the assumption the cause of the spike was a change in tax policies and the there isn't an argument that there is no rising income inequality in the source just that the US isn't especially worse then elsewhere.

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