Yale economist Robert Shiller says he and a colleague have studied "inequality indexation" with the objective of showing how more complex systems of tax rates might work. Though the concept could irritate some, it aims to "help achieve a better society," the expert says in an excerpt from his new book, "Finance and the Good Society," posted Tuesday on Bloomberg.
"Rising inequality is certainly a valid concern, and one that must be addressed," writes Shiller, who–in the end–doesn't stridently come down in favor or the inequality-indexation scheme he describes. Instead, he shares it as another option to put on the policymaking table.
It's not that financial capitalism produces unjust wealth distribution, it is that some wealthy families "annoy others by 'showing off'–by spending extravagantly and wastefully on themselves." That leads to resentment.
In ancient times, Shiller notes, Greece forbade women from wearing extravagant clothing or jewelry.
"Neither a sumptuary tax nor a progressive consumption tax is an easy and obvious solution to the problem of wasteful and resentment-inducing consumption that announces wealth or social position," he writes.
"Ideally, estate taxes should be set at some intermediate level, so that they neither confiscate people's wealth at death nor allow it to pass entirely to the next generation," explains Shiller.
Taxes and Inequality
While one of "society's most important weapons against economic inequality is the progressive income tax … ," according to Shiller, "the income-tax system has never been designed with the express objective of managing inequality."
In his view, countries like the United States "would be wise to index their tax systems to inequality. Under such a system, the government would not legislate fixed income-tax rates for each tax bracket, but would instead prescribe a formula that tied tax rates to statistical measures of pretax inequality."
