The Joint Committee on Taxation of Congress jointly (no pun intended) with the US Treasury Department has recently released a paper arguing for the remeasurement of the inputs used by Thomas Piketty in his works with Emmanuel Saez and later retooled with Gabriel Zuchan. The specific work in question measures inequality through data from tax return statistics as compiled by the IRS. However, before getting into the proposed enhancements by the new study it would be appropriate to go a little into the landscape of income inequality studies, and that boils down to two people.
Thomas Piketty and Anthony Atkinson, prominent figures in the realm of economic inequality, present distinct viewpoints that warrant serious consideration. Atkinson initiates the discourse by delineating a crucial dichotomy: inequality of opportunity versus inequality of outcome. His emphasis lies on addressing both aspects – the fairness of the race and the distribution of rewards. His rationale extends to the conviction that mitigating inequality of outcome today is pivotal for fostering equality of opportunity tomorrow.
Piketty’s narrative revolves around the burgeoning concentration of wealth, particularly discerning between income derived from labor and income stemming from capital. For him, the essence is not merely the paycheck but the broader implications of ownership and its contribution to the overall inequality landscape.
The divergence in their approaches becomes apparent when probing their motivations. Atkinson underscores the interconnection between the top and bottom tiers of society, contending that actions at the summit reverberate throughout the social strata. On the other hand, Piketty grounds his concern in democratic principles, advocating for a society where inequalities are rooted in merit and effort.
Some studies argue that their disagreement manifests in three key aspects: the feasibility of addressing inequality, the specific policy actions advocated, and the practical viability of these proposals.
Firstly, Atkinson takes a proactive stance, attributing inequality to political and economic choices rather than uncontrollable forces. He asserts that government intervention can diminish present inequality levels, expressing optimism about humanity’s ability to shape the future. In contrast, Piketty, while proposing policy actions, appears less optimistic. His historical analysis hints at enduring forces driving inequality beyond easy remedy, cautioning against overly optimistic outlooks.
The second divergence lies in their proposed actions. Atkinson offers a pragmatic array of fifteen proposals, emphasizing the importance of government roles in shaping the future. His focus on reducing pre-tax and marketplace inequality is evident. Piketty, despite a seemingly fatalistic tone, suggests a shorter but ambitious list, advocating for a global tax on capital and heightened international financial transparency to regulate capitalism’s inegalitarian consequences.
The third facet of disagreement centers on the practical feasibility of their proposals. Piketty deems his global tax on capital utopian and unrealistic in today’s context, citing the need for extensive international collaboration. Atkinson counters this skepticism by providing concrete simulations demonstrating the feasibility of his proposals, showcasing a confidence in the practical implementation of his ideas.
The second dimension of disagreement delves into the factors influencing inequality. Both economists agree on mining historical insights, particularly the Great Compression era in the 1940s. However, they diverge on the causes behind the decline in inequality during this period. Piketty underscores war and subsequent shocks, rejecting the notion of a natural trend toward equality. Atkinson, in contrast, considers government transfers, the welfare state, wealth distribution, and labor market regulations as complementary factors.
These discrepancies in proposals, beliefs, and causal explanations underscore a surprising discord between economists ostensibly aligned in their pursuit of understanding and rectifying inequality. The forthcoming sections aim to unravel the enigma of their divergent conclusions and policy recommendations within the ostensibly objective realm of inequality studies.
Delving deeper, Atkinson introduces the concept of fairness, suggesting a tangible link between effort and reward to define a just distribution. In contrast, Piketty scrutinizes what he terms “meritocratic extremism,” expressing reservations about exorbitant CEO salaries being heralded as the epitome of fairness.
While Atkinson champions a fair race, Piketty envisions a just aftermath. Their common ground is evident in the shared disdain for extreme levels of inequality. And this is why the paper released by Gerald Auten and David Splinter is worth looking into as their expertise in the field of Taxation has given Piketty’s study more breadth and possibly help it to realize a mix of either Atkinson’s or Piketty’s proposals to improve inequality for future generations.