Taxing rich `is best way to cure economic ills'

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Taxing the rich is the best way to cure the economic ills of modern society, according to an economist from Cornell University.

Professor Robert Frank hit out particularly at proposals in the United States for a "flat tax" that would massively reduce the amount most of the rich would have to pay in tax.

The flat tax would "worsen the social strains of economic inequality, fuel the growth of wasteful consumption by the rich, and steer more and more of our brightest students into `winner-takes-all' markets," he told the Baltimore conference.

Those who propose levying less tax on the rich argue that the "trickle- down" effect would stimulate economic growth. But Professor Frank believes that instead it could fuel runaway salary growth and lower national GDP. "As the rich get richer, more and more individuals are drawn into the pursuit of a limited number of superstar positions in what I call winner- takes-all markets," he said.

Since 1973, he pointed out, the top 1 per cent of US wage earners had captured more than 40 per cent of all economic growth, and the chief executives of large companies now earned more than 120 times as much as the average worker. The lure of these highly paid jobs was tempting the best graduates to pursue "top positions in law, finance, consulting and other overcrowded arenas, in the process forsaking careers in engineering, manufacturing, and teaching, in which an infusion of additional talent would yield greater benefit to society", Professor Frank said.

A higher tax on top earners would cause fewer talented people to compete for the limited slots at the top. If it were made a progressive tax levied on consumption it would free up billions of dollars at present wasted in "mine-is-bigger consumption arms races".