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Saturday, January 14, 2017

The Case Against Cutting Top Marginal Tax Rates

Adam Ozimek:

The Case Against Cutting Top Marginal Tax Rates: For some people, cutting income tax rates is an evergreen strategy for expanding the economy. If you cut income taxes, the argument goes, people will work more. Under this logic, cutting the top marginal tax rates is good for everyone because these households work more, which increases the size of the economy. There’s one simple problem with this argument: High-income workers already work a lot. ...
 Workers with higher family incomes tend to put in the longest hours already...
It seems unlikely that there is much room to improve here, which suggests a limited upside to cutting top marginal income tax rates. In contrast, employment rates and hours worked for the lowest income has much more room to improve. This suggests that cutting taxes and even subsidizing employment would be better focused on low-income workers.

Even if there was room to work more, it's not at all clear that tax cuts would motivate more effort. And on the demand side, the tax cuts would not impact aggregate demand as much as they would for lower income households.

    Posted by on Saturday, January 14, 2017 at 12:18 PM in Economics, Taxes | Permalink  Comments (48)


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