Emmanuel Saez and Thomas Piketty Attempt to Rewrite Human Nature

In Why the 1% should pay tax at 80%, Emmanuel Saez and Thomas Piketty attempt to make the case that confiscatory taxation creates economic growth. It may be a postulate worth considering; but instead of defending their position with evidence, Saez and Piketty end up looking like condescending collectivists out to redistribute income, attack wealth creators, and hinder economic growth.

Saez and Piketty's economic "analysis" includes many bizarre assumptions and contradictions that are aligned with feelings and hopes while ignoring the most basic principles of scarcity, human nature, and incentives. The field of economics has not been so badly violated since the last time Paul Krugman spoke.

Here, we can begin to see the fly in the ointment of commanding Keynesians.

"At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large."

The assumption: taxing high earners will bring in more tax revenue. Saez and Piketty then spout with confidence:

"Doubling the average US individual income tax rate on the top 1% income earners from the current 22.5% level to 45% would increase tax revenue by 2.7% of GDP per year"

Then undermine their position:

"Such a large increase in taxes may well affect the economic behaviour of the rich and the income they report pre-tax, the broader economy and, ultimately, the tax revenue generated."

And contradict their premise:

"Higher top tax rates may discourage work effort and business creation among the most talented: the so-called supply-side effect. In this scenario, lower top tax rates would lead to more economic activity by the rich and hence more economic growth."

They have admitted that rate reductions increases income and increased income create more tax revenues, but then argue for an 80% tax rate, yet have admitted tax rates cause behaviors to change? So if we believe in human nature, incentives, and free will, the tax rate/generation estimates they just proposed have no basis in reality.

Saez and Piketty use rhetoric like an economic shell game to falsely prop up the real focus of their vision, a disapproval of top income earners also having a top share of total income.

"There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares"

They attempt to explain away their contradictory conundrum with emotional connotations.

"Higher top tax rates can increase tax avoidance. In that scenario, increasing top rates in a tax system riddled with loopholes and tax avoidance opportunities is not productive either."

The authors admit higher tax rates change the incentives for human behavior and then say that human behavior can be controlled by closing "loopholes." What they fail to mention is that "loopholes" are called laws, and people freely and fairly will make decisions in their own best interest in line with what those laws allow. If Saez and Piketty don't like the laws, they should work to change them, not denigrate human nature as if it does not apply to their more sophisticated existence.

In addition, "tax avoidance opportunities" is just a euphemism for people obeying the law. For a lack of any substantive evidence the authors fall into the tired old habit of the socialists, attack wealth creators so as to redistribute as they, the anointed, see fit.

Saez and Piketty then go on to argue that people should be controlled.

"With sufficient political will and international co-operation to enforce taxes, it is possible to eliminate most tax avoidance opportunities."

Next, the theatre of the absurd takes a different turn when we are asked to believe the fundamentals of productivity and wealth creation apply only to the poor and middle class but not to top wealth creators.

"While standard economic models assume that pay reflects productivity, there are strong reasons to be sceptical, especially at the top of the income distribution where the actual economic contribution of managers working in complex organisations is particularly difficult to measure."

Exactly what are the reasons to be "skeptical" that intractable principles of economics found in "standard models" can somehow be ignored by only one group of humans? When did "difficult to measure" become an economic rationale to legitimize an 80% top tax rate? Talk about grabbing at unicorns and pixie dust!

Alas, it gets worse.

"Here, top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees."

The authors become psychotic when arguing that people "set their own pay" against the laws of supply and demand.
As this fictional novel comes to a dramatic climax; the authors falsely charge the wealthy as criminals in a last ditch attempt to sway the gullible.

"Cuts in top tax rates can still increase top income shares, but the increases in top 1% incomes now come at the expense of the remaining 99%. In other words, top rate cuts stimulate rent-seeking at the top but not overall economic growth"

The claim is that the lower the tax rate the more the top earners will "rent-seek" (connotation: set their own wages and take from others) and the higher the tax rate the less they will take; as if human nature, incentives, and self-interest is null and void at the flick of governments hand.

Actually, what they call "rent seeking" the rest of us call wages, salaries, or earning a living. We all engage in rent seeking, it is the greed of self-interest to serve others and it applies to everyone.

Saez and Piketty's argument: higher tax rates for the top lessens "rent seeking," lowers income share and creates economic growth. By this analysis, the authors want us to believe that people do not have the same human nature and behave equally under the same set of incentives. That is ignorant, elitist, or bigoted.

The authors end with this:

"The job of economists should be to make a top rate tax level of 80% at least "thinkable" again."

Actually, the job of economists is to accurately analyze facts to explain the costs and outcomes of choices. Maybe Saez and Piketty should just admit they are social activists for a collective and redistribution economy of equal suffering. Mr. Krugman would be so proud.