Here we have a lovely paper from the people down the road at UCL “The Impact of Taxes on Income Mobility”. It is commonly assumed that the best way to help the poor, and to raise their standard of living is to tax the rich until their pips squeak, and then redistribute their wealth.
This isn’t necessarily true, according to Mario Alloza. If we want the poor to be able to advance in society, and to give them the opportunity to rise up through the income levels so they can have a better standard of living, what we actually want to do is to have as low marginal tax rates as possible (and although not the findings of this particular paper, marginal rates at all in my opinion).
Data drawn from the US demonstrates that higher marginal rates reduce income mobility. Ergo, unless we want the poor to stay poor, we would want policy makers not to hurt the poor by denying them opportunities to better themselves.
This isn’t a debate about the welfare state, and what it does to the people it is supposed to help. This is about what is bad for the poor – economic theory would assume, and in this case demonstrates, higher marginal rates are bad. Get rid of them.