Tax Law

Law Profs: Cap Income of One Percenters When Inequality Reaches 'Tipping Point'

Two law professors are proposing a way to stop the growth in income inequality with a tax that would cap the income of the one percenters when inequities grow too large.

Law professors Ian Ayres of Yale and Aaron Edlin of the University of California at Berkeley outline their plan in a New York Times op-ed. “Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners—a tax that would limit the after-tax incomes of this club to 36 times the median household income,” they write.

In 1980, the average one percenter made 12.5 times the median income, they say. In 2006, the average one percenter made 36 times the median income. Ayres and Edlin believe the ratio has reached the “tipping point” where democracy may be undermined. They cite Justice Louis Brandeis, who warned of concentrated wealth when he joined the Supreme Court in 1916. “We believe that we have reached the Brandeis tipping point,” they say.

“Here’s how the tax would work,” they write. “Once a year, the Internal Revenue Service would calculate the Brandeis ratio of the previous year. If the average 1-percenter made more than 36 times the income of the median American household, then the IRS would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36. This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter—currently about $330,000 per year.”

In their view, the tax would provide an incentive to keep median U.S. income high through trickle down corporate wealth. “The sky is the limit for the rich as long as the ‘rising tide lifts all boats,’ ” they write.

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