Skip to content

7 April 2022

Top incomes and tax policy

Inequality has increased in many developed countries – including the United Kingdom – since the 1980s. The most striking feature has been the surge in income and wealth concentration at the top (Alvaredo et al., 2018). At the same time, the current existing tax systems in advanced economies do not do a very good job at taxing the ultra-wealthy, especially those who have built a fortune through a successful global business (Saez and Zucman, 2019a). The corporate income taxes on business profits have shrunk due to international tax competition. The individual income tax is based on realised income and hence can be avoided as long as business shares are not sold and profits are retained with the corporation. The ProPublica leak of June 2021 (Eisinger, Ernsthausen and Kiel, 2021) shows that the richest 25 Americans have paid in federal income taxes from 2014–18 only 3.4% of their wealth gain over this period. The estate and inheritance taxes come late by definition and have also become fairly easy to avoid through aggressive tax planning and weak enforcement.

Governments worldwide have also reacted to the COVID-19 crisis with ambitious relief measures to support families and businesses funded for now primarily with public debt. Hence, it is likely that governments will seek new fiscal sources in coming years.

These developments have generated growing interest for increasing the tax burden on the very rich. In this perspective, summarising recent research in this area, we discuss the ideas for new revenue sources focused on the top of the distribution: a progressive tax on net wealth with a high exemption threshold; a wealth tax on corporations’ stock; and a one-off tax on top-end unrealised capital gains.

Cite this as:

Saez, E. and Zucman, G. (2022), ‘Top incomes and tax policy’, IFS Deaton Review of Inequalities,