Raising taxes on the rich would "play a major role" in reducing income inequality, according to Larry Summers.
Capping the earnings of the likes of Mark Zuckerberg or Bill Gates would do little to actually boost the poor and middle class, Summers, a former economic advisor to President Obama and the treasury secretary from 1999 to 2001, argued in a Washington Post op-ed Sunday. But closing tax loopholes that largely benefit the wealthy -- like the capital gains exemption, certain estate tax provisions and corporate tax breaks -- could help middle-class and poor Americans, he wrote.
“Today’s tax code allows a far larger share of the income of the rich to escape taxation than the poor or middle class,” Summers wrote. “Closing loopholes that only the wealthy can enjoy would enable targeted tax measures such as the earned-income tax credit to raise the incomes of the poor and middle class more than dollar for dollar by incentivizing working and saving,” he continued.
Summers' comments come as 1-percenters are getting increasingly defensive about their right to take home so much of the income pie. Venture capitalist Tom Perkins stoked ire last month when he compared progressive activism against the superrich to Nazi persecution of the Jews in Germany. Other superrich guys, along with the Wall Street Journal op-ed page, ran to his defense, arguing that the rich are getting unfairly picked on.
Former Mitt Romney advisor Greg Mankiw didn’t go that far in a New York Times op-ed titled “Yes, the wealthy can be deserving,” but he argued that tax-dodging corporations and billionaires aren’t the norm. Rather a large share of wealthy people's income ends up in government hands, he wrote.
Still, some studies have backed up Summers' idea that reforming the tax code could make a dent in income inequality. According to a 2013 study from the Institute on Taxation and Economic Policy, when you consider things like sales and state and local taxes, the poor fork over a larger share of their income to Uncle Sam than their richer counterparts.
And over the past several decades, lawmakers have actually made that dynamic worse. A June 2013 study from the left-leaning Economic Policy Institute found that policymakers have exacerbated income inequality over the last several decades by making the tax code less progressive -- in other words, cutting taxes on the rich.
In addition, a study published by the National Bureau of Economic Research in May indicated the same dynamic exists in other developed countries as well. The more lawmakers cut top tax rates, the larger share of income the wealthy take home, the study found.