Wednesday, March 14, 2012

Revenue-Optimizing Tax Rate

A broad economic review
Of the facts of how taxes accrue
Said that federal receipts
Would do well, if elites
Had a rate increase "up the wazoo".

Bruce Bartlett, former tax policy advisor to Reagan and George H.W. Bush, complains in The New York Times that one never sees conservatives providing evidence to support their claim that higher marginal income tax rates would discourage work and investment.
The reason for the conservative reluctance to estimate the revenue-maximizing top tax rate is that academic research generally shows that it is much, much higher than the current top rate or any that has been proposed by the Obama administration.
Two recent studies under the auspices of the National Bureau of Economic Research point to a revenue-maximizing top tax rate of 83%! One of the studies found no "supply side" effects of the reductions in the top tax rate since 1975, implying that an increase would not materially impinge on economic activity; which is a good thing, because the government really needs the money.

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