Did a panel of respected economists just dismiss the idea of raising the top income tax rate to 70 percent?
If you happened to be on Twitter on Wednesday afternoon, you might have noticed a poll floating around suggesting just that. It was conducted by the IGM Forum at the University of Chicago’s Booth School of Business, which regularly surveys a group of more than 40 top academic economists about policy issues in the news. The idea of hiking tax rates back to pre-Reagan levels has been getting a fair bit of attention ever since freshman Rep. Alexandria Ocasio-Cortez, D-Twitter, brought it up a couple weeks back in an interview with 60 Minutes. So IGM decided to try to take the pulse of professional opinion on the matter, by asking its experts whether they agreed or disagreed that a 70 percent rate would raise “substantially more revenue” for the government “without lowering economic activity.”
The results were not positive. Only 18 percent of the panel agreed that a 70 percent rate would raise money substantially without dinging the economy; 49 percent disagreed and 19 percent were uncertain.
So, case closed? Economists overwhelmingly think AOC is a policy naïf? Not at all. The results of this survey don’t really tell us anything about academic opinion on high top marginal tax rate, in part because IGM completely botched its question.
On the bright side, its mistake gives us a useful opportunity to talk about how economists analyze tax hikes.
Let’s start with the specific wording of the survey. IGM asked the members of its all-star econ panel whether they agreed or disagreed with the following statement:
Raising the top federal marginal tax on earned personal income to 70% (and holding the rest of the current tax code, including the top bracket definition, fixed) would raise substantially more revenue (federal and state, combined) without lowering economic activity.
There are two main problems here. The first is that this question doesn’t have much to do with what Ocasio-Cortez talked about during her TV interview, in which she informally suggested raising the top rate to 70 percent on households making more than $10 million a year. IGM asks about applying that rate to the current top bracket, which kicks in at $612,000 for married couples. That’s a very, very different proposal, which would almost certainly have a different economic impact.
The second issue has to do with how the question is worded. It asks whether a 70 percent tax rate would raise revenue “without lowering economic activity.” Does that mean without lowering economic activity significantly, or without lowering it at all? It’s unclear, which is a problem since most tax economists assume that raising top rates significantly would cause at least some high earners to cut back on work. The debate is over whether there would a big effect—enough to negate much of the benefit to the government’s coffers—or a small effect. Few, if any, experts think there would be no effect at all.
“Most economists would think that the change in economic activity would be small. Most economists would think it’s bigger than zero,” University of California, Berkeley, economist Emmanuel Saez told me. In 2011, Saez published a landmark paper with Nobel Prize winner Peter Diamond finding that the optimal top tax rate for the U.S. would be 73 percent. Even in that study, the two assumed that raising rates would lead incomes of the rich to fall a bit, due to some combination of tax avoidance and reduced work. Saez was among the minority on the IGM panel who agreed the U.S. could push rates that high “without lowering economic activity,” but only because he chose to interpret the query loosely. (“The question was not very well posed,” he told me). In their responses, other members of the panel took issue with the question’s wording, and some who disagreed with the statement stipulated that they thought the impact on economic activity would be very modest. The survey results don’t tell us whether those economists think the policy would be good on net.
Chicago’s IGM Forum has a history of fouling up its questions on hot-button issues. For instance, a few years back it tried to ask economists what they thought of the main theory in Thomas Piketty’s Capital in the 21st Century but did such a poor job describing it that Piketty himself disagreed with their version. There’s also a broader, philosophical question about whether it’s actually useful to ask a broad cross-section of economists from different specialties about questions outside their specific areas of study, which is more or less the IGM Forum’s approach. You wouldn’t ask a bunch of chemical engineers and physicists about their opinion on controversial issues in biology. It’s not clear why the public needs to know what a superstar development or health care economist thinks about taxes. As a number of writers have pointed out there is, after all, a whole raft of contemporary economic research showing that 70 percent marginal tax rates, or higher, could be ideal. There is also, of course, some work suggesting otherwise; perhaps the people who spend their lives studying these issues are the right ones to ask about them.
But if an organization is going to poll a generic bunch of economists on questions of public import, they should at least try to get the questions right.