by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Two controversial economists have played a major role in the 2020 Democratic primary with Senators Bernie Sanders (I., Vt.) and Elizabeth Warren (D., Mass.) each trumpeting major tax hikes and financial reforms to curb inequality.
University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman have gained currency on the left for their proposed radical taxes on wealth and financial transactions. While Warren, Sanders, and other leading liberals rush to embrace them as advisers, a debate has roiled academic economics. The evidence on which Sanders, Warren, and others have built their plans to dramatically transform the U.S. economy may be shoddier than their supporters realize, according to some prominent Democrats who have called the research “substantially inaccurate and substantially misleading.” …
… The pair’s public elevation has brought with it massive scrutiny, and many economists think their work does not hold up.
The dispute over Saez and Zucman’s work is intensely technical, but it more or less boils down to the fact that calculating income distribution and tax incidence both necessarily require making a host of methodological choices. Wherever possible, Saez and Zucman make the choice that in some cases radically overstates inequality compared to other academic estimates.
For example, the pair chose to focus on inequality among “tax units,” meaning discreet tax returns, which are not necessarily the same with individuals (because of jointly filing couples) or households (because of dependents who file separately). Research indicates that the income distribution for tax units is more inequitable than among households or individuals.