Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. US wealth at the top follows a power law, with the richest 25 Americans holding 70% of the wealth of the top 100, and the top 100 holding 70% of the top 400's. The author argues the degree of skew depends on taxation, noting effective corporate tax rates fell from near 40% to about 12%.

Paul Krugman Krugman Wonks Out
Date Posted:

Krugman argues that concentrated business ownership leads wealth to follow a power law that is “highly skewed to the very top,” and that the steady reduction in corporate taxation since 1960 has sharply increased that skewness.

Does the tax system shape how concentrated top wealth becomes?

Core argument: The effective U.S. corporate tax rate has fallen from close to 40% in the 1950s to around 12%, reflecting both lower rates and expanded loopholes.

People who have much of their wealth invested in a particular business may experience large gains if that business (or the industry in which that business operates — e.g., the technology industry) does well, large losses if the business does badly. This approach can explain why the distribution of wealth, even among the very wealthy, is well described by a power law that is highly skewed toward the top. Thus the combined wealth of the 25 richest people in America is 70% of the combined wealth of the top 100, and the wealth of the top 100 is in turn 70% of the combined wealth of the top 400. But what determines the level of skewness toward the top? One major factor is surely the extent to which those who are already wealthy are able to keep the returns from their wealth and use those returns to accumulate even more wealth. And that factor, in turn, depends a lot on the tax system. In particular, the U.S. used to have high rates of taxation on corporate profits. Much of this taxation fell on the wealthy, and this reduced their ability to accumulate even more wealth. But as a result of both lower rates and of expanded loopholes, the effective corporate tax rate has fallen from close to 40% in the 1950s to around 12% (see gallery].

Takeaways by Macro Roundup® AI

  1. The effective U.S. corporate tax rate has fallen from close to 40% in the 1950s to around 12%, reflecting both lower rates and expanded loopholes.
  2. The combined wealth of America's 25 richest people equals 70% of the top 100's wealth, which in turn equals 70% of the top 400's, a pattern described by a highly skewed power law.
  3. Concentrated wealth held in a single business or industry, such as technology, can bring large gains or losses, an approach that helps explain why wealth follows a power law skewed toward the top.

Related Articles:

  • Comment On “How Much Tax Do Billionaires Pay?” — After adjusting existing estimates for families filing on multiple tax returns, double-counted capital income, missing taxes, and standard income definitions, the author finds the top 400 effective tax rate exceeds the overall rate by 13 percentage points, though it remains below the rate paid by the top 0.01% ranked by income.
  • How Much Tax Do US Billionaires Pay? Evidence from Administrative Data — Using administrative tax data, the authors estimate the 400 wealthiest Americans paid a total effective tax rate of 23.8% of economic income, down from about 30% earlier in the decade and below the average rate for the full US population. The decline followed a drop in corporate taxes paid.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
Showing 161 database articles primarily about Inequality
Currently filtering by: