Taxing the Rich: A History of Fiscal Fairness in the United States and Europe

"Mick: This is the one that’s most related to current concerns. It tries to explain episodes in which the rich have been taxed at very high rates. There are all kinds of theories you might put forward about that. Was it, for instance, to do with the widening of the suffrage and the rise of democracy, the idea being that a majority of non-rich voters will vote to tax the rich to extract money for themselves? Or was it because of some social consensus that such taxes were needed to address unacceptably high inequality? Scheve and Stasavage have a quite different explanation. They argue that the episodes in which we’ve taxed the rich particularly heavily have had a compensatory element and occur particularly during and after big wars, where there’s been mass conscription. The idea is that when the poorer bear some massive burden in pursuit of some collective goal, the rich have, in effect, been pressured or even felt it right to make a commensurately large financial commitment. This force is most evidently at work in mass wars: the conscription of wealth is called for to match the conscription of labor. This relates to Joel’s point about the importance of war in understanding the development of tax systems. Major wars have led to very heavy taxes on the rich, not only or even mainly in order to raise a lot of money, but because the poor are seen as having a massively harder time during war. “Because of the pandemic, countries need to raise a lot of revenue” The book is relevant to today and some of the things we’ve been talking about, partly because it argues, for example, that it’s not simply concerns with inequality—which we hear much of these days—that have given rise to heavy taxes on the rich. Episodes of heavy taxes on the rich may have more to do with this idea of compensating the poor for some spectacularly disproportionate suffering. Some people have tried to draw parallels with the current pandemic, given that the poor, and the most vulnerable, have borne a disproportionate share of the burden. The better off, and many of the middle class, haven’t had such a bad time. One issue—going back to what you asked at the outset, whether we’re at a cusp—is whether the pandemic has set up the compensatory context in which we might see these pressures for the rich to pay substantially more tax to meet what are in many countries going to be heightened revenue needs. Joel: What their message has to say about today is fascinating. The book was written before COVID. It ends by saying, ‘Well, it doesn’t look likely that we’re going to be able to have more taxes on the rich, because the nature of war has changed.’ Scheve and Stasavage talk about how today we don’t need mass armies anymore. Without that, the burdens of wars won’t be so heavily borne by low-income folks. So this compensatory argument doesn’t apply. So, just like Mick, I have been wondering ‘Does COVID have that same element of a mass war?’ Maybe this compensatory argument applies to the post-pandemic era. If you read the last page in the book, it is not optimistic that increased taxation for the rich can fly—but maybe it can. Mick: Yes and, in fact, we may see it already a bit. People are starting to talk about ‘excess profit taxes,’ which the UK, US and many others had in both world wars. These are one form of solidarity tax that countries have sometimes adopted to deal with emergencies, even short of war—in response to national disasters, for instance. Mick: Right! Our sense is that the pandemic-related moment for this may have passed, at least in advanced countries. It might have had better prospects six months ago."