“If you actually want to deal with poverty, happiness and anger in the US, the government will need to have more resources,” Banerjee said in an interview in Stockholm on Saturday. “The US is extremely undertaxed relative to OECD standards, and there is no reason why it needs to be so undertaxed.”
The Organisation for Economic Co-operation and Development’s latest report on revenue statistics shows that total US 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 US number from 26.8% in 2017.
The issue of taxation has become a lightning rod in US 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.
Banerjee said the fear of tax hikes that dominates some corners of the political debate in the US 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 US 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.
“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.’’