Stanford scholar Kenneth Scheve says history shows that mass mobilizations and changing tax fairness norms were key factors behind higher tax rates for the wealthy based on the premise that if labor is conscripted, the wealthy should pay their share, too.

U.S. and European societies tax the rich at higher rates when people believe that the wealthy have unfair privileges due to their economic status, a Stanford professor said.

Kenneth Scheve, a professor of political science and senior fellow at the Freeman Spogli Institute for International Studies, recently published a book, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe, with co-author David Stasavage, a New York University political scientist.

Scheve studies international and comparative political economy and comparative political behavior. The Stanford News Service interviewed him about the issue of taxes, the wealthy and inequality.

What are the historical origins behind the decisions for countries to impose high taxes on the rich?

The real watershed for taxing the rich came in 1914.  Before that time, even among countries who adopted income taxes, the rates on high earners never exceeded 10 percent. Most countries had some sort of inheritance tax, but rates were never above 15 percent. Among the countries that mass-mobilized for World War I, this changed dramatically with countries adopting top income tax rates that exceeded 70 percent during and immediately after the war. These increases were repeated during World War II with top rates in some countries exceeding 90 percent. We show in the book that these decisions had more to do with changing beliefs about tax fairness and preserving equal sacrifice in the war effort than simply that the wars were expensive. It was not the most financially desperate countries that taxed the rich the most. Democratic countries for which equality fairness norms were the strongest tended to respond to mass mobilization with higher taxes on the rich much more so than non-democracies.

What does your book debunk – what is its most surprising finding?

The two most commonly held ideas about when and why countries tax the rich are when they democratize and when inequality is high. We find surprisingly little evidence for either one of these ideas. The latter finding is particularly important for understanding what’s happening today in countries like the United States that have high and rising economic inequality. A common question is, “Why hasn’t the political system responded with higher taxes on the rich?” In sorting out which answers to this question are compelling, it is critical to understand that this lack of response is not unusual historically, and so answers that emphasize specific purported shortcomings in contemporary American democracy may be misleading.

Do high taxes on the rich actually reduce inequality between the rich and poor?

The short answer is yes. We found that the countries which, for whatever reason, raised taxes on income and wealth subsequently had lower levels of income and wealth inequality. The longer answer is that this finding comes with some caveats. It is hard to identify factors that lead countries to change their tax policies that wouldn’t also influence inequality, making it difficult to isolate the impact of high taxes on inequality.

What roles do war and technology play on the imposition of high taxes on the richest segment?

We found that it is not just war but mass-mobilized wars, often with conscripted armies, that lead countries to impose high taxes on the rich. Technology has played a decisive role in whether countries can and want to fight wars with mass armies in which a substantial proportion of the population is mobilized. It was not possible to transport, supply, and command these armies until the railroad and other technologies of the industrial revolution were developed, and once militaries could employ technologies such as cruise missiles that allowed them to deliver force at a distance with precision, mass armies became much less desirable. The late 19^th to the mid-20^th century was the era of the mass army and, in many ways, the era of high taxation on incomes and wealth.

Looking ahead, what do you expect to be the future tax burden for those at the top of income and wealth levels?

We should not expect a return to the high top tax rates of the post-war era. Future wars are more likely to be fought with drones and professional soldiers than mass armies. Absent the new fairness arguments that mass-mobilized wars made credible, it is not clear that in most countries, including the United States, there is likely to be a consensus that taxing income and wealth at substantially higher levels is fair. This is the lesson that we draw from history, and it also fits with what many American voters prefer today. When we have conducted surveys on representative samples of Americans, we have found only minority support for implementing a tax schedule radically more progressive than the one in place today.

We do find, however, that citizens care a great deal about tax fairness and there is substantial support for some tax reforms that resonate with a variety of competing visions for what counts as a fair tax system. For example, in the current U.S. tax system, in some instances the rich actually pay a lower rate of tax than everyone else.  Reforms to address these privileges seem both desirable and a reasonable expectation for future policy.

Gaps in social science knowledge of climate change constrain the policy impact of natural science research, a Stanford team argues.

Scientists have made huge strides in understanding the physical and biological dimensions of climate change, from deciphering why climate has changed in the past to predicting how it might change in the future.

As the body of knowledge on the physical science of climate grows, a missing link is emerging: What are the economic and social consequences of changes in the climate and efforts to control emissions of greenhouse gases?

In a new paper in the journal Science, a team led by Stanford professors Charles Kolstad and Marshall Burkeargues that relatively low funding for social science research has contributed to a knowledge gap about what climate change means for human society. This knowledge gap, they argue, renders the large advances in natural science less useful than they could be for policymakers.

The paper highlights three research questions with the greatest potential to close that gap:

What is the true cost of carbon emissions?

The social cost of carbon (SCC) is a dollar value estimate of future social and economic damages caused by each present-day metric ton of carbon emissions. It can also be thought of as the amount of money society saves, in terms of damage avoided, by not emitting an additional metric ton of carbon.

"The SCC is a key policy measurement that's already being used in U.S. government regulations. But existing estimates have shortcomings and these need fixing if we are going to make the correct policy decisions around climate change," said Burke, an assistant professor at Stanford School of Earth, Energy and Environmental Sciences, a center fellow at the Freeman Spogli Institute for International Studies and a faculty fellow at the Stanford Institute for Economic Policy Research.

Current SCC calculations leave out several important factors. For example, what is the economic cost of extreme climate events such as floods and droughts? How should economists estimate "non-market" damages that are exacerbated by climate change, such as armed conflict, disease epidemics and deforestation? In what parts of the world does climate change slow or accelerate economic growth? Can farmers avoid lost income from climate change by adapting their crop choices and planting schedules?

"Getting the social cost of carbon right is most pressing, given its importance to policy," said Kolstad, a senior fellow at the Stanford Institute for Economic Policy Research and at the Precourt Institute for Energy. "It's also an area where rapid research progress should be possible."

What emissions mitigation policies are best?

Once researchers agree on the true cost of carbon, there are many policy options for reducing emissions. Industry regulations and subsidies for renewable energy are popular policy choices for governments all over the world, but they may be weaker at cutting emissions than less politically popular options like carbon pricing or tradeable carbon emission permits.

"Until we understand more about the benefits and tradeoffs of different carbon pricing options, governments are almost flying blind on climate mitigation policy," Kolstad said. "When we can make a clear economic case for one policy over the other, we can better align decisions about carbon pricing systems with their actual costs and benefits and, as a result, strengthen political support for action." 

What role do developing countries play?

Most of the existing research on climate economics tends to focus on wealthy countries, even though developing countries now contribute more total greenhouse gas emissions. Poorer countries also often face a different policy environment than richer countries and are potentially more economically vulnerable to changes in climate.

"We need better evidence on how impacts of climate change might differ in developing countries, as well as a deeper understanding of the climate policy choices faced by developing country governments," Burke said.

Twenty-eight leading economists contributed to the Science paper, a fact that Burke pointed to as evidence of broad consensus on the need for more economic research on climate change.

The biggest roadblock, the authors agree, is funding.

"The research problems are tough for both natural scientists and economists, but research support has been much more modest in economics, so far fewer people are working in the area and progress has been slower," Kolstad said.

"Dozens of teams of physical scientists around the world work with the exact same climate simulations and compare results to estimate future climate change," Burke said.  "Economists are just starting to do something similar, and as this collaboration develops I think it will be immensely valuable. There's a strong argument for spending research dollars on understanding the economic and social implications of that physical science. Social science is relatively cheap, so extra funding can go a long way."

Kolstad encourages young researchers to pursue the "many interesting, socially relevant questions in this field" and advises governments to work together to strengthen long-term research funding and support for graduate students and postdoctoral researchers. "Otherwise," he said, "the large sums spent on natural science will be poorly targeted."

CONTACT:

Charles Kolstad, SIEPR: ckolstad@stanford.edu, (650) 721-1663

Marshall Burke, Earth System Science: mburke@stanford.edu, (650) 721-2203

Laura Seaman, Food Security and the Environment: lseaman@stanford.edu, (650) 723-4920

A recent review published in International Migration Review (IMR) lauded “Global Talent: Skilled Labor as Social Capital in Korea,” by Stanford professor Gi-Wook Shin and Joon Nak Choi. IMR reviewer Keumjae Park said the book makes an important contribution to the literature on foreign skilled workers and the problems that countries like South Korea face with demographic and economic change.

Park said the book “offers provocative policy questions” about how South Korea can encourage the development of social and cultural ties in its highly skilled labor markets, which in turn, support local and transnational markets through spread of information, innovation and trust.

Park also highlights the book’s approachability, saying it “offers theoretical lessons for general research” while it “invites attention of policy makers and business strategists.”

“Global Talent” is a part of Korea’s Global Talent, an ongoing research project at the Shorenstein Asia-Pacific Research Center. The project analyzes the potential benefits of transnational bridges between South Korea and the United States, and aims to provide insights that could be applied to other Asian countries.

Read the full review below and on the IMR website.