I recently claimed that it's difficult to argue that lower top marginal tax rates will raise economic growth. However, it doesn't follow from this at all that there's no argument for them. If I were a rightist, here's how I would argue for them.
The case for lower marginal rates is primarily one of justice. As Hayek and Nozick argued, state that takes a large chunk of your income is an oppressive one. Sure, in theory a high marginal tax rate can coexist with a low average rate, but in practice the two often do go together, especially for the very rich - and in a civilized society we should worry about injustices done to small minorities.
What's more, there's no obvious evidence that avoiding this injustice carries economic costs. Sure, Piketty and Saez claim (pdf) that an optimal top tax rate might be high. But optimality is a very high standard, and the costs of falling short of it are low; there's a great deal of ruin in a nation. And in fact, two things suggest lower top tax rates might be consistent with a healthy economy:
- In the very long-run, taxes affect social norms. A very high top tax rate might therefore eventually erode the sense of individualist self-reliance and work ethic and so - perhaps after a generation or two - depress growth; Assar Lindbeck has explored this possibility (pdf).
- A low top tax rate goes together will a smaller state. This is because the best way to tax the rich less is to tax everyone less. And there's some evidence that under some circumstances smaller government is good for growth.
Granted, there are reasons to think that lower top tax rates can depress growth. But these are less convincing arguments against them than you might think. For example:
"Lower top taxes incentivize rent-seeking and the creation of risk pollution." But they do so only because they interact with bad policies. Better corporate governance and an end to crony capitalism should be used to reduce rent-seeking. And better banking regulation or the end of the implicit state subsidy would reduce risk pollution.
" Lower taxes have an income effect which encourages wealth creators to retire or downshift." But this is a good thing. It shows that lower taxes increase people's real freedom to choose work or leisure. The left wants a basic income because it increases real freedom for the poor. Isn't it hypocritical to deny real freedom to the rich?
Now, I write all this to speak to left and right. To rightists, I'm saying that you don't need to argue that tax cuts for the rich will boost near-term growth. In fact, doing so only makes you look like a fanatical shill who doesn't much care about the data. To the left, I'm asking: what's so good about higher top tax rates? They might be a tolerable second-best policy in a world where inequality arises in "bad" ways, such as from risk pollution and exploitation. But I would rather live in a society with low pre-tax inequality and low tax rates. But I guess this is why I'm a Marxist rather than a social democrat.