Show Me The Money!

Jon Chait follows up his article on the gap between productivity and wages, with a published chat with Robert Rubin and Peter Orszag on the issue. The current issue of TAP, meanwhile, has a package of articles on policies to create high-wage jobs.

Let me just observe with regard to Rubin and Orszag that I feel like they’re neglecting the possibility that tax rates influence pre-tax distribution. To take an extreme example for illustrative purposes, if you had a 90 percent tax bracket kick in for people making over $400,000 a year, it would make much more sense to try and hire two people each making $400,000 than to try and hire a “superstar” for $800,000. The additional $400,000 you’d be paying in salary to the superstar would only buy $40,000 worth of labor, which is a pretty crappy deal for the employer. Bush’s cut in the top rate wasn’t super-dramatic on that scale, but if you look at the long-term Carter-Reagan-Bush-Clinton-Bush trajectory, the top marginal income tax rate actually is way lower than it used to be.