Recent years have seen increased interest in the share of income that accrues to the richest in society. We will be providing new evidence on the scale and sources of income for those at the top of the distribution and setting out how tax policy can address top income inequality.
Business and capital incomes – increasingly important at the top
Income from business ownership accounts for a large, and, in some countries, growing share of top incomes. In general, capital gains and dividend income are more lightly taxed than employment income. These policy choices are central to our ability to redistribute from rich to poor, and are arguably unfair when similar people earning the same overall income pay very different tax bills depending on the source of their income. We will provide new evidence on the extent to which business owners are at the top of the income distribution and on whether it is the same people that have high incomes each year or whether different people move in and out as their income fluctuates.
Good tax design requires understanding context and unintended consequences
Taxation crucially affects the incentives that people face and choices they make. Higher taxes can, for example, lead people to work less, move abroad, or shelter their money in an offshore account. It is important to take all these responses, which will depend on institutional context, into account when designing tax policies to tackle income inequality. We will draw on the best available evidence on how people respond to taxes and on the incidence of different taxes (i.e. who ultimately bears the burden of a tax) in setting out tax policy options.