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U.S. Needs to Raise Taxes to Fight Poverty, Nobel Laureate Says

Rafaela Lindeberg

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The U.S. needs to raise taxes considerably if it’s going to tackle poverty, according to Abhijit Banerjee, a winner of this year’s Nobel prize in economics.

Banerjee, a professor at the Massachusetts Institute of Technology, said inadequate taxation in the world’s biggest economy has left the government without the cash it needs to help its poorest citizens. He won the 2019 prize in economic sciences along with his wife Esther Duflo and Harvard University’s Michael Kremer.

“If you actually want to deal with poverty, happiness and anger in the U.S., the government will need to have more resources,” Banerjee said in an interview in Stockholm on Saturday. “The U.S. is extremely undertaxed relative to OECD standards, and there is no reason why it needs to be so undertaxed.”

Read more: How the U.S. Gets Away With Freakishly Low Taxes: Justin Fox

The Organisation for Economic Co-operation and Development’s latest report on revenue statistics shows that total U.S. tax income came in at 24.3% of economic output last year, one of the lowest levels among the OECD’s 36 member countries. What’s more, tax cuts that took effect last year reduced the U.S. number from 26.8% in 2017.

The issue of taxation has become a lightning rod in U.S. politics as the country gears up for next year’s presidential election. Democratic candidate Elizabeth Warren has built her campaign on a pledge to force the richest Americans to pay more. She and others have argued that tax cuts pushed through by the administration of President Donald Trump haven’t helped the middle class.

Global Poverty

Banerjee said the fear of tax hikes that dominates some corners of the political debate in the U.S. is irrational. “I don’t think any disaster would happen if taxes are raised,” he said. “I think this idea that you need to keep cutting taxes to keep growth going -- there is no evidence for it whatsoever. I’m quite comfortable saying that, yes, taxes have to be raised.”

In awarding the prize to Banerjee, Duflo and Kremer, the Royal Swedish Academy of Sciences praised the economists for providing a body of research that “has considerably improved our ability to fight global poverty.”

Banerjee said the U.S. should also look into introducing more measures to ensure that people who lose their jobs as a result of globalization and technological advances are kept in the workforce.

‘Economic Choices’

“There’s a bunch of stuff that is happening which we treat as acts of God which are not,” he said. These are “economic choices which have small benefits to many people, and have large costs for a few people. That’s a situation where the large costs are really beginning to dominate the political conversation, so we’d better worry about it.”

A lot of Americans are now poorer than their parents, and that’s one of the reasons so many people are upset, Banerjee said.

“The American dream, which was a continuous upward progress, has faltered and stopped,” he said. “That can’t be a a way to create a reasonable social system.’’

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Patrick Henry, James Amott

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