Raise $4 Trillion by Raising Top Marginal Rate to 67%.
The New York Times is finally recognizing the growing body of evidence that progressive income tax rates raise revenues without negatively affecting productivity and investment i.e. economic growth. The studies strike at the heart of the Republican economic mantra that raising taxes always, always reduces economic growth because government spending simply replaces private spending (crowds out) and therefore cannot produce net gains.
Perhaps the most controversial conclusion, made by Mr. Saez and two colleagues in another study published last December, is that while the rich would respond to a big tax increase by shielding income from the tax man and maybe working less, this would not slow the economy at all. That’s because a lot of what the rich do does not, in fact, generate economic growth. So if they reduced their effort in response to higher taxes, the economy wouldn’t suffer……
But the new line of research has the potential to overturn contemporary thinking about government finances. And in one respect, it seems indisputable: three decades of tax cuts may have gilded the pockets of the rich, but they didn’t provide much economic juice…….
Raising the top tax rates on the richest Americans could go a long way toward balancing the federal budget. Mr. Saez estimated that raising the top tax rate on the top 1 percent of earners to 67 percent would raise about $4 trillion over a decade. That’s a start.
Beezer here. Compared to that, President Obama’s tax proposal to return the top rate to 39.5% and raise an additional $2.1 trillion to trim deficits and debt appears modest.
Tags: Budget deficits and debt, Emmanuel Saez, Federal income tax rates, New York Times, Peter Diamond, Raise marginal tax rates