Monthly Archives: May 2013

Would Higher Taxes for the Rich Harm the Economy?

While the many ardently push for lower taxes for all with the goal of increasing economic, research seems to show that current US marginal tax rates are not maximizing government revenues.

In “A review of the economic research on the effects of raising ordinary income tax rates” on the Economic Policy Institute website says

“recent economic research suggests that past reductions in top marginal individual income tax rates have had a statistically insignificant impact on growth and its driving factors—labor supply, savings, investment, and productivity growth”

The paper also states that,

“Recent research implies a revenue-maximizing top effective federal income tax rate of roughly 68.7 percent. This is nearly twice the top 35 percent effective marginal ordinary income tax rate that prevailed at the end of 2012, and 27.5 percentage points higher than the 41.2 percent rate in 2013.2 This would mean a top statutory income tax rate of 66.1 percent, 26.5 percentage points above the prevailing 39.6 percent top statutory rate.”

While it is highly unlikely that the US will every raise the top tax rates to 68.7, it is interesting to consider that the  American government is not economically rational, in that it is not seeking to maximize the revenues it could generate.

The US is much more willing to increase debt, rather than tax the wealthiest Americans.

Is the goal of a developed society to maximize the incomes of the ultra-wealthy? What about providing services like education, health care and old age security?