« "What's Wrong with Climate Change Economics?" | Main | "When Populism Is Sound" »

Thursday, March 15, 2012

"Without Significantly Deterring the Wealthy from Trying to Earn More"

Peter Diamond:

...Diamond also pointed to some of his own recent research, with economist Emmanuel Saez of the University of California at Berkeley, which found that the optimal marginal income tax rate on the highest earners — those making $400,000 or more per year — is well above the current 36 percent, or even the 39 percent level that existed during the 1990s.  

“The Washington debate right now is between the Bush and Clinton tax rates on the top,” Diamond said. But his work with Saez shows that a more efficient rate for raising revenue — without significantly deterring the wealthy from trying to earn more — is “somewhere between the tax rate at the top in Reagan’s first administration, which was 50 percent, and the tax rate at the top from the Johnson years up to the Reagan change, which was 70 percent.” ...

The objection to increased taxes on the wealthy used to be about growth, but as that argument has been undermined by actual evidence (or lack of it when it comes to detecting the promised effect of tax cuts on growth), the argument has shfted to fairness. It wouldn't be fair to tax them that much, it's their money, etc. But since the gowth of income for the typical household has not kept up with productivity -- the money flowed to the top of the income distribution instead -- the issue of fairness may not work in their favor.

    Posted by on Thursday, March 15, 2012 at 02:26 AM in Economics, Income Distribution, Taxes | Permalink  Comments (62)


    Feed You can follow this conversation by subscribing to the comment feed for this post.