How to tax the rich (economist.com)

And how to limit the economic damage

.. If revenues are to rise, there are good grounds to look first to the rich. Mr Trump’s tax cuts are just the latest change to have made life at the top more splendorous. Between 1990 and 2015 the real income of the top 1% of households, after taxes and transfers, nearly doubled. Over the same period middle incomes grew by only about a third—and most of that was thanks to government intervention. Globalisation, technological change and ebbing competition have all helped the rich prosper in recent decades. Techno-prophets fear that inequality could soon worsen further, as algorithms replace workers en masse. Whether or not they are right, the disproportionate gains the rich have already enjoyed could justify raising new revenues from them.

Unfortunately, the proposed new schemes are poorly designed. Ms Warren’s takes aim at wealth inequality, which has also risen dramatically. It is legitimate to tax wealth. But Ms Warren’s levy would be crude, distorting and hard to enforce. A business owner making nominal annual returns of around 5% would see much of that wiped out, before accounting for existing taxes on capital. That prospect would squash investment and enterprise. Meanwhile, bureaucrats would repeatedly find themselves having to value billionaires’ art collections and other illiquid assets. Eight rich countries have scrapped their wealth taxes since 1990, often amid concerns about their economic and administrative costs. In 2017 only four levied them.

There are better ways to raise taxes on capital. One is to increase inheritance tax, an inequality-buster that, though also too easily avoided, is relatively gentle on investment and work incentives when levied at modest rates. Another is to target economic rents and windfalls that inflate investment returns. Higher property taxes can efficiently capture some of the astronomical gains that landowners near successful cities have enjoyed. It is also possible to raise taxes on corporations that enjoy abnormally high profits without severely inhibiting growth. The trick is to shield investment spending by letting companies deduct it from their taxable profit immediately, rather than as their assets depreciate. (Mr Trump’s reform accomplished this, but only partially and temporarily.)

.. What about income tax? Ms Ocasio-Cortez’s boosters point out that a 70% levy is close to the rate that is said to maximise revenue in one notable economic study. In truth the study is notable because it is an outlier—one that ignores the benefits of entrepreneurial innovation or of workers improving their skills. France’s short-lived 75% top tax rate, which was scrapped at the end of 2014, raised less money than was hoped. America’s top rate of federal income tax is 37%; higher is clearly feasible, but it would be wise to keep change incremental.

Although there is scope to raise taxes on the rich, they cannot pay for everything, if only because the rich are relatively scarce. One estimate puts extra annual revenue from Ms Ocasio-Cortez’s idea, which applies only to incomes above $10m, at perhaps $12bn, or 0.3% of the tax take. Ms Warren’s proposal would raise $210bn a year, her backers say—but they assume, implausibly, limited avoidance and no economic damage. Ultimately, the price of ambitious spending programmes will be tax increases that are also far-reaching. The crucial point about a strategy for taxing the rich is to realise that it has limits.

Government by Bureucrats or Charismatic Leaders

A century ago, during the tumultuous Weimar Republic, Max Weber delivered a lecture titled “Politics as a Vocation”. Democracy in modern nations, he argued, could take one of two forms: rule by bureaucrats acting from self-interest and “living from” politics; or a “leadership democracy” in which a charismatic leader commands a party machine that can mobilise voters. Weber would not have been surprised by the Putins, Orbans and Erdogans of today. His teachings remain eerily relevant

Accents: The cost of sounding black

Two studies by professors with a command of multiple accents found that estate agents in America were less likely to offer them properties in white or Hispanic neighbourhoods when they used their black voice. The implications are profound. A house in a good area is a ticket to a good school, which allows your children to mix with people who have the “right” accent, perpetuating the circle. The reverse is true too. Such prejudice is wrong and also irrational

WhatsApp suggests a cure for virality

Other tech firms should watch and learn

Services such as Facebook and Twitter are built to maximise “virality”, making it irresistible to share, like and retweet things. They are getting better at it: fully half of the 40 most-retweeted tweets date from January last year.

.. Virality can cost lives. At least two dozen innocent people have been lynched in India this year after bogus rumours warning of child abductors went viral on WhatsApp, a messaging service owned by Facebook. WhatsApp has also been used by political operatives in India, its largest market, to stoke religious and nationalist fury.

.. Starting this month, however, users of WhatsApp will find it harder to spread content. They will no longer be able to forward messages to more than 20 others in one go, down from more than 100. In India the upper limit is just five and WhatsApp has removed the “quick forward” button from audio, video and images, adding an extra step to the process of sending content.

.. The goal is not to prevent people from sharing information—only to get users to think about what they are passing on. It is an idea other platforms should consider copying.

.. Sceptics point out that WhatsApp can afford to hinder the spread of information on its platform because it does not rely on the sale of advertisements to make money.

Slowing down sharing would be more damaging to social networks such as Facebook and Twitter, which make money by keeping users on their sites and showing them ads. Their shareholders would surely balk at anything that lessens engagement.

..  Facebook’s shares fell by 23% in after-hours trading this week, partly because Mark Zuckerberg, its boss, said that its priority would be to get users to interact more with each other, not to promote viral content. Yet the short-term pain caused by a decline in virality may be in the long-term interests of the social networks. Fake news and concerns about digital addiction, among other things, have already damaged the reputations of tech platforms. Moves to slow sharing could help see off draconian action by regulators and lawmakers.

..  Instagram, a photo-sharing social network also owned by Facebook, shows that you can be successful without resorting to virality. It offers no sharing options and does not allow links but boasts more than a billion monthly users. It has remained relatively free of political content and misinformation.

.. Move slow, don’t fake things

The need to curb virality is becoming ever more urgent. About half the world uses the internet today. The next 3.8bn users to go online will be poorer and less familiar with media. The examples of hoaxes, misinformation and violence in India suggest that the capacity to manipulate people online is even greater when they first gain access to digital communications.

Small changes can have big effects: social networks have become expert at making their services compulsive by tweaking shades of blue and the size of buttons. They have the knowledge and the tools to maximise the sharing of information. That gives them the power to limit its virality, too.