Book Reviews Finance & Development, June 2016, Vol. 53, No. 2
Robbing Hood Kenneth Scheve and David Stasavage
Taxing the Rich: A History of Fiscal Fairness in the United States and Europe
Princeton University Press, Princeton, New Jersey, 2016, 288 pp., $29.95 (cloth).
Visiting a depressed Welsh village in the 1930s, the future British King Edward VII famously remarked that “something must be done.” Current agonizing over rising inequality has a similarly plaintive feel. Will anything actually be done about it, in the form of much greater tax progressivity? This admirable book gives a clear answer: probably not.
This is just one implication of the authors’ big idea: a distinctive theory of what drives strongly progressive taxation. To arrive at it, they first elegantly dispose of two alternative explanations. One is that progressive taxation comes about as an application of ability-to-pay arguments: the rich should pay a higher tax rate because it hurts them less. But the authors show that higher top tax rates have generally not resulted from higher pretax inequality. The other is that increased progressivity has come from extension of suffrage, with the numerically dominant poor voting to extract resources from the outnumbered rich. But the authors conclude that this story doesn’t work either.
What remains is their “compensatory” theory—the idea that strongly progressive personal tax systems are most likely to emerge when, in democracies, there is some fundamental state-induced unfairness that cannot be removed by other means and when, in particular, “the deck is stacked in favor of the rich, and the government did the stacking.”
Such unfairness can take several forms, such as broad-based commodity taxes needed for revenue reasons. But the most important source, at the center of their argument, is mass mobilization for war. The U.S. Civil War fits the bill, for example, with mass levies and widespread sentiment that this was a “rich man’s war and a poor man’s fight.” Sure enough, both sides introduced a progressive income tax. (That the federal income tax was soon removed is consistent with a further implication of the compensatory view: progressivity fades once the fundamental unfairness subsides.) The same broad narrative fits the two world wars, which the book examines in detail. But the world, and the technology of warfare in particular, has changed. It is the shift toward high-tech warfare rather than fighting with mass armies that...