Tax Cuts, Sold as Fuel for Growth, Widen Gap Between Rich and Poor Taking into account all the ways top earners respond to taxation, Mr. Piketty and colleagues suggested that the optimal top tax rate on the Americans with the highest incomes — the rate raising the most money for the government — could exceed 80 percent with no harm to growth. What did respond to lower taxes was inequality: The income share of the top 1 percent grew much more sharply among big tax cutters like the United States than in countries like France or Germany, where top tax rates changed little. “In 1986 we dropped the top income tax rate from 50 to 28 percent and the corporate tax rate from 46 to 34 percent,” said Bruce Bartlett, a policy adviser in the administration of President Ronald Reagan. In more unequal societies, the rich have more power to distort policy making to channel more of the fruits of growth in their direction by, say, cutting taxes and government spending that might improve productivity and growth. Compelling new economic research suggests that in the economy in which we live, cutting taxes on the rich further won’t just fail to foster growth, it could even make the economic pie smaller.
