"Would a significant increase in the top income tax rate substantially alter income inequality?"

Here's a Brookings piece by Gale, Kearney, and Orszag --- with some research assistance from yours truly --- which tries to perform the following accounting exercise: If we increased tax rates on the wealthy, and there were no behavioral effects, how much would the after-tax Gini decrease? The answer is "not very much at all."

Under current tax provisions, the after-tax Gini coefficient is .574. This compares to a Gini of .610 calculated over pre-tax income. Raising the top income tax rate to 45 percent reduces the Gini coefficient only from .575 to .573. Raising it to 50 percent brings the Gini to .571.

Some explicit redistribution from the rich to the bottom 20% reduces inequality a bit further, but still not much.

Why? Mostly, because we were considering changes just to the top bracket, which doesn't start until taxable income of $464,850 (for married filing jointly), which corresponds to gross income even higher. Changing the top bracket effects only the very top --- the top 0.5 percent or so --- while 90/10 inequality would be untouched.

On Borjas (2015), The Wage Impact of the Marielitos : A Reappraisal

Influential labor economist George Borjas is out with a new working paper revisiting the famous Card (1990) result on the Mariel Boatlift. The Boatlift was a huge, plausibly exogenous immigration shock felt by Miami in 1980. Card had originally found that the Miami labor market had seemed to absorb the immigrants without an impact on native wages. Borjas' working paper challenges that result.

Is Tax Avoidance Socially Costly?

Yesterday, I was reading Gorry, Hassett, Hubbard, and Mathur (2015) in this week's NBER release. Their paper is about how taxes affect the structure of executive compensation (e.g., between cash, stock grants, and stock options). This motivated me to try to think carefully about the extent to which tax avoidance is socially costly.

A Toy Model of Repatriation of Foreign Earnings of U.S. Corporations (or, How Congress Keeps Shooting Itself in the Foot)

Frequently, we hear reports out of Washington that, while "tax reform is dead", the parts of the corporate tax involving foreign earnings are so self-evidently horrible that we might see a small-scale reform to this part of the tax code.

This stylized fact seems relatively true: the most recent estimates suggest that U.S. corporations are holding over $2 trillion in "profits" overseas; these profits, if repatriated, would be subject to a tax equal to the difference between the U.S. corporate rate (35%) and whatever was paid initially to the foreign country [omitting some details]. Members of Congress would love to see this cash brought home, even if the benefits only accrue to shareholders and executives, as the recent literature has suggested. (Of course, the profits need not actually be "held" overseas; we just mean that some controlled foreign corporation has yet to pay its U.S. parent corporation a big fat dividend of those profits.)