Economic commentators Matt Yglesias, Paul Krugman, and Noah Smith believe Rep. Alexandria Ocasio-Cortez's call for a 60 to 70 percent top marginal income tax rate is uncontroversial.
Presuming we could design a tax system from scratch that eliminates the possibility of people avoiding taxes or hiding or reclassifying income, they estimate the single combined marginal tax rate that would generate maximum revenue to "Soak the rich." Incorporating other wishful thinking about how the rich respond to taxes, these economists wind up calculating that the "Optimal" top tax rate is about 70 percent, if you are also willing to imagine closing off special treatment for capital gains and the possibility of incorporation.
Second, what if we were not able to redesign the tax code to eliminate avoidance? A 73 percent rate, the optimal rate calculated by Diamond and Saez in 2011, is a combined rate that assumes we eliminate all deductions and exemptions.
If we presume instead that the current deductions and exemptions continue, and high earners were as responsive to tax rates today as they were in the '80s, then the supposed optimal combined tax rate falls to 54 percent.
Local, sales, and other taxes are taken into account, this translates to a top federal income tax rate of 48 percent-much higher than today's rate of 37 percent, but nowhere near the 60 to 70 percent rate advocated by Ocasio-Cortez.
Most of the venerated papers that seem to support super high tax rates for top earners assume we share progressive preferences, that we can implement a new wholly combined tax system to eliminate the possibility of any form of tax planning, and that these huge tax hikes won't have longer term effects on growth or human capital accumulation.
Given all this, Krugman, Yglesias, and Smith could easily have said, "There's a progressive case, grounded in economics, for major tax reform, eliminating all deductions, and having one single progressive tax with very high rates, especially on top earners." But they could instead have said, "There's a progressive case, grounded in economics, for modestly higher top tax rates within the current code." But they cannot claim simultaneously that Ocasio-Cortez's big idea merely echoes the 1950s and that her recommendation is backed up by these economists.
http://reason.com/archives/2019/01/09/do-economists-agree-a-70-percent-top-mar
Presuming we could design a tax system from scratch that eliminates the possibility of people avoiding taxes or hiding or reclassifying income, they estimate the single combined marginal tax rate that would generate maximum revenue to "Soak the rich." Incorporating other wishful thinking about how the rich respond to taxes, these economists wind up calculating that the "Optimal" top tax rate is about 70 percent, if you are also willing to imagine closing off special treatment for capital gains and the possibility of incorporation.
Second, what if we were not able to redesign the tax code to eliminate avoidance? A 73 percent rate, the optimal rate calculated by Diamond and Saez in 2011, is a combined rate that assumes we eliminate all deductions and exemptions.
If we presume instead that the current deductions and exemptions continue, and high earners were as responsive to tax rates today as they were in the '80s, then the supposed optimal combined tax rate falls to 54 percent.
Local, sales, and other taxes are taken into account, this translates to a top federal income tax rate of 48 percent-much higher than today's rate of 37 percent, but nowhere near the 60 to 70 percent rate advocated by Ocasio-Cortez.
Most of the venerated papers that seem to support super high tax rates for top earners assume we share progressive preferences, that we can implement a new wholly combined tax system to eliminate the possibility of any form of tax planning, and that these huge tax hikes won't have longer term effects on growth or human capital accumulation.
Given all this, Krugman, Yglesias, and Smith could easily have said, "There's a progressive case, grounded in economics, for major tax reform, eliminating all deductions, and having one single progressive tax with very high rates, especially on top earners." But they could instead have said, "There's a progressive case, grounded in economics, for modestly higher top tax rates within the current code." But they cannot claim simultaneously that Ocasio-Cortez's big idea merely echoes the 1950s and that her recommendation is backed up by these economists.
http://reason.com/archives/2019/01/09/do-economists-agree-a-70-percent-top-mar
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