Paul Krugman Has Finally Connected The Dots On US Tax Policy

What should have been apparent to economists, now makes sense to Paul Krugman.  The Republican Party has promoted tax policies which dramatically reduce taxes on wealth.  It started with Ronald Reagan, but it accelerated under George Bush.  The capital gains tax, the tax on dividend income and the inheritance tax were all reduced in the Bush Administration.  Paul Ryan's Republican Road Map would eliminate taxes on wealth.  Of course, top executives are not stupid, they have modified their compensation plans accordingly.  Most of their compensation is in the form of stock options.  They are taxed at the lower capital gains rate, instead of the tax on earned income, when they cash in their options.  Private equity managers and hedge fund managers have also managed to have much of their income taxed at the lower capital gains rate.

A good detective might have looked at this evidence and concluded that these changes in tax policy shifted the tax burden from those who earned their incomes from wealth, to those who earned their incomes from labor.  It might even suggest that the wealthy had more influence over tax policy than wage earners.  The publication of Thomas Piketty's book has forced some economists to recognize the obvious.  It makes more sense to accumulate and inherit wealth than it does to earn income from wages.  Piketty argues that we are on a path to recreate the rentier society that many deplored when the holders of wealth were aristocrats who earned their incomes from rents on inherited estates.  They have been replaced by holders of financial assets.  Piketty outlined some of the policy changes that might reverse the course that we are on.  The rentier society is inevitable unless regional tax policies are put in place to shift the tax burden from wage income to a taxes on wealth, and to eliminate the use of tax havens which shift the tax burden to those who cannot easily take advantage of tax havens.
Perhaps some economists and politicians will be able to figure out the obvious.  They will face fierce opposition from those who benefit from the current regime but it will be a battle worth fighting.