Tax Break

Robert Shiller lays out a tax plan to address U.S. inequality

February 10, 2012

Influential Yale economics professor Robert Shiller favors a system of taxation that would keep inequality in check. He argues that such a system would help maintain harmony in the United States and benefit all, including the well-to-do.

Shiller is especially well known as co-creator of the S&P/Case-Shiller home price indices, and for two prescient calls: a 2000 forecast of the dot-com bubble’s bust, and a 2005 prediction that the housing boom would cause a recession.

In this talk (video below) with Chrystia Freeland of Reuters, Shiller said he was not trying to abolish inequality but to keep it within limits. He sees a system that addresses the outer bounds of inequality as a way to “prevent class war” and keep a harmonious nation.

Shiller would have the Treasury Department calculate each year the tax rates that would keep the top 1 percent of the country’s earners at no more than 40 to 50 times the median income that year, supporting an idea put forward by Yale law professor Ian Ayres and UC Berkeley economics professor Aaron S. Edlin in a New York Times op-ed published in December.  Describing a widening gap between the very rich and the rest, they wrote:

What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.

The Brandeis reference is to Louis D. Brandeis, the late justice of the Supreme Court and a champion of social causes, whom they quoted as saying: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”

Shiller’s no radical. At one point in the interview he talks about bankers being as necessary as physicians.

“Anti-inequality is not in our Constitution, but I think it is in our spirit,” he said, citing the Homestead Act of 1862, signed by Abraham Lincoln, which granted 10 percent of all U.S. land to independent farmers.

Is this kind of approach an unfair hit on people who are successful, or necessary for the greater good? Add your thoughts below.

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