GOVERNMENTS have no problem taxing capital and capital income.
For a sufficiently generous definition of capital taxes
(including property tax, for instance), America collects about
8% of GDP in such levies, or about a third of all government
revenue raised. Economists (most of them anyway) have long been
adamant that the right tax on capital is no tax at all. This
result, which emerged from research in the 1970s and 1980s, long
ago burrowed its way deep into the belief systems of most dismal
scientists. But the models used to arrive at that conclusion
rely on some often strict and unrealistic assumptions (as even
the modelers responsible for them have been known to
acknowledge). And some economists are experimenting with new
models that develop a different role for taxes on capital, as
this week's Free exchange column explains: In a new NBER working
paper, Thomas Piketty of the Paris School of Economics and
Emmanuel Saez of the University of California at Berkeley poke
different holes in the conventional vie