James Mirrlees RIP
By David Henderson
Mirrlees started with no presumption against high marginal tax rates. Indeed, he has been an adviser to Britain’s Labour Party, which for decades imposed marginal tax rates in excess of 80 percent. But Mirrlees found that the top marginal tax rate should be only about 20 percent; and moreover, it should be about the same 20 percent for everyone. In short, Mirrlees’s work justified what is now known as a “flat tax,” more appropriately called a “flat tax rate.”
Mirrlees wrote, “I must confess that I had expected the rigourous analysis of income taxation in the utilitarian manner to provide arguments for high tax rates. It has not done so.” Indeed.
Mirrlees also proved that the marginal tax rate on the highest-income person should be zero. This is the opposite of the way most noneconomists and most politicians think: marginal tax rates are typically the highest on the highest-income people. Mirrlees’s reasoning is as follows. Imagine that the top tax rate is, say, 40 percent and that the top-earning person makes $500 million in a year before tax. If the government reduced the marginal tax rate to zero for all income over $500 million, it would not lose any revenue because no one was earning more than $500 million. But the individual currently earning $500 million might, because of the increased incentive to earn, decide to work more. He would be better off because he voluntarily chose to do something he did not do before, and the government would be no worse off. The net result is that society, which includes this individual, would be better off.
This is from “James A. Mirrlees” in David R. Henderson, ed., The Concise Encyclopedia of Economics.
Mirrlees died yesterday at age 82.
My other favorite paragraph from the bio is this:
Mirrlees has a refreshing, understated sense of humor. Of his early years in university Mirrlees wrote: “It was regarded as morally dangerous to take philosophy at the beginning of one’s university course.” Reminiscing in 1996 on the advice one of his Cambridge teachers gave him to read Keynes’s 1936 classic, The General Theory of Employment, Interest and Money, Mirrlees commented, “That may not have been the best advice, but it did no great harm, and one day I hope to finish it.”
I don’t know if he finished it. I suspect not.