As the Democratic primary begins in earnest, almost all of the major presidential candidates have announced new, ambitious tax increases on the wealthy.

Progressive young Democrats have also entered the fray, with the support of economists like Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley. Richard Rubin of the Wall Street Journal recently wrote that this new progressive tide, in contradistinction to Democrats of the past few decades, seeks to reverse the Reagan Revolution, which brought marginal tax rates down significantly. Saez and Zucman, among others, see the Reagan tax cuts as the driver of income inequality and slow wage growth for the middle class over the past few decades, and that a reversal of that shift is the solution to those problems.

Saez and Zucman are wrong on both counts: the Reagan Revolution didn’t cause the rise in income inequality, and the Democratic proposals to raise taxes on the wealthy are a bad way to reduce it.

A central premise of the progressive argument that tax cuts in the 1980s drove income inequality is that the marginal tax rate on the highest earners used to be much higher. This is true: for most of the 1950s, the top marginal income tax rate was 91 percent. After the two 1980s tax reforms, the top tax rate dropped from 70 percent to 28 percent, and since then, it hasn’t been above 40 percent. That sounds like the highest earners are paying a lot less taxes than they used to.

However, as the Tax Foundation has noted, the average tax rate paid by the top 1 percent has not fallen nearly as much. In the 1950s, members of the top 1 percent paid an average of 42 percent of their income in taxes; in 2014, they paid an average of 36.4 percent. Why is this change so much smaller in scale than the change in marginal tax rates? For one, the 91 percent marginal tax rate only applied to roughly 10,000 households a year, and it only applied to income above ~$2 million in today’s dollars, as opposed to the current top tax bracket, which begins at roughly $500,000. Additionally, higher marginal tax rates may have encouraged more tax avoidance, and the tax code had more deductions and loopholes with which to lower one’s tax burden in the 1950s.

Another way to test whether lower taxes are the driver of rising income inequality is to see whether the tax burden of the top 1 percent is increasing at a similar rate as their incomes. If the 1 percent’s income grew by 50 percent, but the amount of taxes they pay grew by only 20 percent then we could say that the tax code has become significantly less progressive and is increasing inequality by taxing the rich less than it used to.

In 2018, the Congressional Budget Office found that, from 1979 to 2014, the top 1 percent’s share of national income rose from 9 percent to 17 percent. Over the same time period, the top 1 percent went from paying 14.1 percent of all federal taxes to 26.6 percent of all federal taxes, according to the Tax Policy Center. Therefore, from 1979 to 2014, the top 1 percent’s share of income grew by 88.8 percent, and the 1 percent’s share of federal taxes paid rose by 88.7 percent. In other words, lower taxes are a rounding error in terms of why the 1 percent earn more of national income now than they did before the 1980s.

Sources: Emmanuel Saez via Inequality.org, Tax Policy Center, Congressional Budget Office (CBO)

So why has income inequality risen in the U.S.? And why have middle-class incomes barely grown?

There are lots of possible answers. Technology and globalization are important factors. Neoclassical economics assumes that wages are determined by worker productivity, and some economists have argued that globalization and technological change over the past few decades has increased the productivity of the highest-skilled U.S. workers the most. This phenomenon is also known as the “superstar effect”: a more globalized economy means that the most talented CEO can take advantage of even more investment opportunities, or broadcasting sports games means that the most skilled athletes become even better-known relative to the average player and help the team sell more tickets. An alternative explanation would be that slow wage growth has been driven by slow productivity growth thanks to an aging population, as recent research from economist Adam Ozimek has indicated.

Similarly, the wage premium of education rose sharply from 1980 to 2000. As the economy globalized, lower-skill industrial jobs moved to developing nations, and service-based and high-skill jobs became more important in the United States.

There are other factors at work, too. Bloomberg columnist Noah Smith examined several in a recent piece. Rising healthcare costs mean that employees receive more compensation in the form of employer-sponsored health insurance instead of income, which explains why compensation has grown steadily while income has been flat. Labor markets might also be a culprit. Some economists have argued that labor markets have become less dynamic: people are less likely to switch jobs or move to find a new one, meaning they’re less likely find a more productive job. Another explanation is that workers have less negotiating power, either because there are fewer firms competing for workers’ labor (also known as monopsony) or because of a decline in unionization.

It’s important to add that the process of globalization over the past 40 years has been a boon for the world as a whole. The global middle class has experienced the strongest wage growth of any income group — even the rich in the developed world — and income inequality has declined globally for the first time in two centuries. But that doesn’t mean it doesn’t cause problems worth addressing on a country-by-country basis.

At this point, a progressive might argue that even if the Reagan tax cuts have almost nothing to with rising income inequality, raising taxes on the wealthy and making the tax code more progressive is still the answer. But the proposals leading Democrats have advocated would seriously reduce economic growth and productivity, and productivity growth is the ultimate source of higher wages.

For starters, the estate tax has compliance costs as big as the revenue it generates. Elizabeth Warren’s wealth tax has numerous problems: it would effectively place low taxes on supernormal returns to investment, which are not very sensitive to taxes, but higher taxes on normal returns, which are much more responsive to taxation. The corporate income tax is widely considered the most harmful tax to growth for every dollar of revenue it raises, and depresses wages in the long run by reducing capital investment, the driver of productivity growth. Furthermore, raising top marginal income tax rates to 60 or 70 percent would reduce technological innovation in the United States, which would mostly hurt the average person.

The common theme among the tax hikes that these Democratic leaders have proposed is that they place a far greater emphasis on trying to bring the income of the wealthy down, rather than lifting up the incomes of the poor. Their policies would reduce the size of the economy, and end up reducing incomes across the board, not just for the top 1 percent. There are some smarter approaches to increasing tax progressivity, like removing itemized deductions. Itemized deductions predominantly benefit higher-income taxpayers, and in the cases of the mortgage interest and state and local tax deductions, make problems like rising housing prices worse.

One way to tax the “idle rich” would be to replace the payroll tax with a value-added (or consumption) tax. That would raise taxes on the top income quintile, particularly on wealthy people who consume a lot but do not work, while slightly improving economic efficiency.

Changing the tax code to make the distribution of after-tax income more equal has its limits. Instead, policymakers can look at ways to make the pre-tax distribution of income less unequal, preferably by reducing the cost of living and improving conditions in the labor market. Several weeks ago, I wrote an article in The American Conservative arguing that lowering the cost of housing, healthcare, and education should be the cornerstone of a new Republican economic agenda. Incremental healthcare reforms like price transparency and breaking up hospital mergers would lower costs for patients. The U.S. could in the long term look to the Singaporean healthcare model of universal catastrophic insurance, which would make healthcare access more affordable while also reigning in government spending, according to the RAND Corporation. Removing zoning and land use regulations would expand the housing supply and drive rents down, which would disproportionately benefit low-income people. And advancing affordable alternatives to a traditional four-year college degree would relax the burden of student debt and make it easier for low-income people to enter the jobs of the future.

Similarly, policymakers should pursue labor market reforms that make the labor market more worker-friendly, while avoiding policies that keep low-skilled workers out. For example, generally speaking (and there are exceptions) minimum-wage increases lead to an increase in unemployment, and the lowest-skilled workers tend to be the ones who lose their jobs, making it harder for them to gain experience and learn new skills to move up the economic ladder.

Instead, there are a few approaches that wouldn’t have that sort of negative unintended consequence. Restricting the use of non-compete contracts for low-wage jobs would give workers more negotiating power. Increasing high-skilled immigration would increase entrepreneurship and new firm formation, and more firms in the marketplace means an increase in demand for labor and competition for workers, raising wages. Reforming unnecessarily burdensome occupational licensing laws would improve social mobility and create more middle-class jobs. And lower rents have more benefits than just higher real incomes. The areas of the country that have experienced the most productivity growth in recent years (and hence offer higher wages) are predominantly urban centers with high cost of living. Zoning reform to permit the expansion of the housing supply would make it easier for workers to move to new cities to pursue higher-wage jobs. That would also increase the negotiating power of workers at their current firms.

Ultimately, it’s wrongheaded to see tax policy as the primary cause of or solution to rising income inequality. Tax reform can play a role in reducing income inequality by eliminating special tax provisions that predominantly benefit high-income earners, but progressive proposals to soak the rich would reduce productivity growth, the ultimate source of wage growth and prosperity. Instead, the answer to inequality is to address the rising cost of living and make labor markets more competitive. That approach would help raise wages and reduce income inequality without sacrificing growth and productivity.