Remember the French economist Thomas Piketty?
The Tax Foundation does, and in a new analysis of his advice, the think tank found that Piketty's economic prescriptions would absolutely devastate the U.S. economy.
Piketty's "Capital in the Twenty-First Century" was something of a phenomenon earlier this year, rising to bestseller status and gaining lavish praise from some left-leaning circles (and scathing critiques from others).
Piketty lambasted inherited wealth and predicted a slide towards oligarchy as resources accumulate in the upper echelons of industrial society.
As Paul Krugman, another liberal economist, put it in the New York Times, "[Piketty] makes a powerful case that we’re on the way back to 'patrimonial capitalism,' in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent."
Piketty's prescriptions for combatting "patrimonial capitalism" included hefty tax rates — as high as 80 percent — on income and capital gains.
But what would the economic impact of such a tax rate be?
The Tax Foundation published analysis Monday that lays out a likely worst-case scenario following the adoption of Piketty's prescriptions: $3 trillion in lost GDP annually, nearly 5 million lost jobs and lower wages and government revenue.
From the foundation's report:
If ordinary income were taxed at the top rates of 80 and 55 percent, our model estimates that after the economy adjusts, total output (GDP) would be 3.5 percent lower, wage rates would drop 1.6 percent, the capital stock would be 7.4 percent less, and there would be 2.1 million fewer jobs.
If capital gains and dividends were taxed at the new tax rates along with ordinary income, the economic damage would be much worse. GDP would plunge 18.1 percent (a loss of $3 trillion dollars annually in terms of today’s GDP), the capital stock would be 42.3 percent smaller than otherwise, wages would be 14.6 percent lower, 4.9 million jobs would be lost, and despite the higher tax rates, government revenue would actually fall.
Our model estimates that the after-tax incomes of the poor and middle class would drop about 3 percent if the higher rates do not apply to capital gains and dividends and about 17 percent if they do.
It may seem unlikely that the U.S. would ever implement an 80 percent tax rate, but the Tax Foundation notes that, "[Piketty] views an 80 percent income tax as feasible and achievable."
Besides, America has been there before: The top income tax rate was over 90 percent in the early 1950s.
The top tax bracket for 2014 was 39.6 percent.
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