In the News

Stiglitz on the Case for 70% Tax Rate on High Income Earners

Graham Watson

23rd January 2023

Joseph Stiglitz argues here that there should be higher taxes for the super-rich suggesting that there's a case for an income tax rate of around 70% and a 2-3% wealth tax to reduce inequality. In both cases, he seems to argue that the role of luck, particularly as regards wealth, justifies higher taxes.

I'm cautiously inclined to agree with him - however, I'd also add that the capacity for the super-rich to increase both their incomes and wealth has been enhanced in recent times, which might justify higher taxes. And I'd also suggest that many of these gains seems to be divorced from any notably increase in their productivity.

However, at what point do such taxes act to disincentivise productive economic activity? And it is this that needs to be balanced against the desire for greater equality.

Who is Joseph Stiglitz?

Joseph Stiglitz is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences in 2001 for his analysis of markets with asymmetric information. He is also a former senior vice president and chief economist of the World Bank, and has been a member of the Council of Economic Advisers under President Bill Clinton. Stiglitz has written extensively on income inequality, the economic costs of war, and globalisation, among other topics.

What is a progressive income tax?

A progressive income tax is a system in which the marginal tax rate increases as income increases. The idea behind a progressive income tax is that people with higher incomes should pay a higher percentage of their income in taxes than those with lower incomes, as they can afford to do so. This is in contrast to a flat tax, in which the same tax rate is applied to all taxpayers regardless of their income level.

Progressive income tax is typically used as a fiscal tool to reduce income inequality, as it helps to redistribute wealth from the rich to the poor. It is also used to increase the tax base, to fund public goods and services, such as education, healthcare, and infrastructure.

Countries with high marginal tax rates on income in 2021

As of 2021, several countries have relatively high top marginal income tax rates, with some of the highest being found in Europe. Some examples include:

  • Sweden: The top marginal tax rate in Sweden is 57.1%.
  • Denmark: The top marginal tax rate in Denmark is 55.38%.
  • Belgium: The top marginal tax rate in Belgium is 50%.
  • France: The top marginal tax rate in France is 49%.
  • Finland: The top marginal tax rate in Finland is 51.25%.
  • Netherlands: The top marginal tax rate in Netherlands is 52%.
  • Italy: The top marginal tax rate in Italy is 43%.

It's worth noting that these tax rates are for the highest earners and not everyone in these countries pays this high percentage. Additionally, the tax systems in these countries are usually more progressive than in other countries, this means that the lower earners don't have to pay as much as the highest earners.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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