Summary of Taxing the Rich

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The degree to which Western developed countries tax their richest citizens isn’t well explained, in part because it tracks a fluctuating value. Professors Kenneth Scheve and David Stasavage find that the two world wars in the 20th century were history’s biggest drivers of higher taxes on the wealthy. The “compensatory arguments” that contemporaneous political policy makers cited equated the sacrifice of soldiers with the rich doing their share by giving up more money in taxes. The professors conclusively prove that these compensatory arguments about the impact of mass military mobilizations best explain 20th century tax rises. They comprehensively dismember most other theories on the subject. Their focused study provides insights that are more surprising and definitive than you would expect. getAbstract recommends the authors’ analysis to historians, policy makers, tax reformers, the rich and those who want to be.

In this summary, you will learn

  • How and why top tax rates changed dramatically,
  • What impact the 20th century’s two world wars had on taxing the wealthy,
  • What brought tax rates back down, and
  • What the future holds for taxation.
 

About the Authors

Kenneth Scheve is a professor of political science and a senior fellow at the Freeman Spogli Institute for International Studies at Stanford University. David Stasavage is a professor in the Wilf Family Department of Politics at New York University.

 

Summary

Three Arguments

As shown by policy variations throughout history and between countries, no nation has found a definitive answer to the question of how a government can most fairly tax its wealthiest citizens. The range of arguments about this question fall into three broad types:

  1. “Equal treatment arguments” – Everyone should pay the same flat percentage of their income in taxes.
  2. “Ability to pay arguments” – Rich people don’t need the utility of every last dollar of their earnings, so they should forgo some income for the sake of social equality.
  3. “Compensatory arguments” – The wealthy should pay more income tax to make up for the benefits they receive from the system or for the sacrifices of other people in society.

Even the meaning of a simple phrase such as “equal treatment” is less obvious than it appears at first. Should governments tax everyone at the same amount or the same percentage? Should policy makers use higher income tax rates on the wealthy to compensate for the greater taxes the less well-off pay in indirect consumption and sales taxes? In some countries, these arguments...


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    Valeriy Mitrokhin 2 years ago
    taxes were there and there would be somebody who did not try to somehow explain their increase than more state spending, the more taxes on citizens but mainly from these taxes the middle class suffers