What would raising tax rates on high earners do to reduce economic inequality? Not much is the conclusion of a Brookings Institution study summarized by my American Enterprise Institute colleague Jim Pethokoukis. Two of the Brookings Economists — William Gale and Peter Orszag — can fairly be described as liberal (I don't know enough about the third, Melissa Kearney, to make that judgment), and I can easily imagine them favoring a substantial rise in the high-earner tax rate. Indeed, as Barack Obama's first OMB director, Peter Orszag, at least nominally did so. They use a series of simulations to assess the results of raising the top rate to 50 percent and find "the resulting effects on overall income inequality are exceedingly modest."
Pethokoukis notes this and looks at other liberal cures for reducing economic inequality — and, if I'm reading him right, concludes their effects are also likely to be exceedingly modest. The French economist Thomas Piketty, whose book on inequality was a publishing sensation last year, says the remedy is education — "investing in skills, investing in schools." But in this country channeling funds to public schools and, through teacher unions, to the Democratic party has been going on for 40 years, with results that can most charitably described as exceedingly modest. To the young economist Matthew Rognlie, who demonstrated that much of the wealth accumulation Piketty decries takes the form of real estate, Pethokoukis responds aptly, "Here's looking at you, San Francisco." The remedy would seem to be changing restrictive zoning (prompted by environmentalists and NIMBY-minded homeowners). But would that do something more than exceedingly modest to reduce economic inequality? Not clear.
The two things that seem to work are what Piketty pointed to as reducing economic inequality in the first half of the twentieth century — world wars and economic collapse. By destroying vast amounts of wealth, they reduced economic inequality vastly. Unfortunately, that left hundreds of millions of people much less well off (or dead). The lesson seems to be that if you really, really want economic equality, destroy things so that everyone is poor.