[Toshi]

http://elsa.berkeley.edu/~saez/saez-slemrod-giertzJEL10round2.pdf

Abstract

This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates (ETI) using tax return data. First, we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research.

Following the supply-side debates of the early 1980s, much attention has been focused on the revenue-maximizing tax rate. The revenue maximizing tax rate τ∗ is such that the bracketed expression in equation (5) is exactly zero when τ = τ∗. Rearranging this equation, we obtain the following simple formula for the tax revenue maximizing rate τ∗ for the top bracket:

τ∗= 1/(1+a·e) (ref7)

A top tax rate above τ∗ is inefficient because decreasing the tax rate would both increase the utility of the affected taxpayers with income above z ̄ and increase government revenue, which could in principle be used to benefit other taxpayers.13 The optimal income taxation literature following Mirrlees (1971) shows that formula (7) is the optimal top tax rate if the social marginal utility of consumption decreases to zero when income is large (see Saez, 2001). At the tax rate τ∗, the marginal excess burden becomes infinite as raising more tax revenue becomes impossible. Using our previous example with e = 0.25 and a = 1.5, the revenue-maximizing tax rate τ∗ would be 72.7 percent, much higher than the current US top tax rate of 42.5 percent when combining all taxes. Keeping state income and sales taxes, and Medicare taxes constant, this would correspond to a top Federal individual income tax rate of 68.4 percent, very substantially higher than the current 35 percent but lower than the top Federal income tax rate prior to 1982.

Fodder to beat The Joker about the head with/showing the conservatives who cry bloody murder about returning the top marginal tax rate to (gasp!) 39% and change to be idiots.

 

[chillindrdude]

it's easy to raise taxes on a constituency that is only 2-3% of the population. who cares if they don't vote for you in the next election, they are a small slice of pie.

you see, nothing panders to the populist ideal more than hating on rich people. i'm sure they didn't work hard for their money, they can take the financial hit and should be compelled to lift the country out of debt.

 

[Toshi]

Rich people often pay lower effective tax rates than "regular" people due to our tax system, as capital gains are taxed pretty low.

I think the tax burden should be proportional to the amount of wealth. Since the 1% richest have a HUGE proportion of the wealth, and this inequity has grown over the past three decades, I think that's a pretty sound indictment of the current tax system as not being progressive enough.

FWIW, I will make around the 99th percentile of income in my career, unlike Joe the non-registered Plumber who has a snowman's chance of hell of actually achieving that. Even despite this I feel that taxes on the rich are too low. To take this to the logical extreme: even Warren Buffett thinks taxes on the rich are too low.

 

[dante]

it's easy to raise taxes on a constituency that is only 2-3% of the population. who cares if they don't vote for you in the next election, they are a small slice of pie.

you see, nothing panders to the populist ideal more than hating on rich people. i'm sure they didn't work hard for their money, they can take the financial hit and should be compelled to lift the country out of debt.

Do you have *any* idea of what Toshi's post was about? You know, the Laffer Curve, optimal marginal tax rates, etc? I'll give you a hint, it's *not* about "soaking the rich".

 

[Andyman_1970]

To take this to the logical extreme: even Warren Buffett thinks taxes on the rich are too low.

In a 60 minutes interview several years ago he even pointed out that proportionally his secretary paid more in taxes a year that he did.

 

[Pesqueeb]

it's easy to raise taxes on a constituency that is only 2-3% of the population. who cares if they don't vote for you in the next election, they are a small slice of pie.

you see, nothing panders to the populist ideal more than hating on rich people. i'm sure they didn't work hard for their money, they can take the financial hit and should be compelled to lift the country out of debt.

:facepalm:

After all, the reason the winger crowd can’t find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That’s why even people like Beck’s audience, who I’d wager are mostly lower-income people, can’t imagine themselves protesting against the Wall Street barons who in actuality are the ones who ****ed them over. Beck pointedly compared the AIG protesters to Bolsheviks: “[The Communists] basically said ‘Eat the rich, they did this to you, get ‘em, kill ‘em!’” He then said the AIG and G20 protesters were identical: “It’s a different style, but the sentiments are exactly the same: Find ‘em, get ‘em, kill ‘em!’” Beck has an audience that’s been trained that the rich are not appropriate targets for anger, unless of course they’re Hollywood liberals, or George Soros, or in some other way linked to some acceptable class of villain, to liberals, immigrants, atheists, etc. — Ted Turner, say, married to Jane Fonda.

But actual rich people can’t ever be the target. It’s a classic peasant mentality: going into fits of groveling and bowing whenever the master’s carriage rides by, then fuming against the Turks in Crimea or the Jews in the Pale or whoever after spending fifteen hard hours in the fields. You know you’re a peasant when you worship the very people who are right now, this minute, conning you and taking your ****. Whatever the master does, you’re on board. When you get frisky, he sticks a big cross in the middle of your village, and you spend the rest of your life praying to it with big googly eyes. Or he puts out newspapers full of innuendo about this or that faraway group and you immediately salute and rush off to join the hate squad. A good peasant is loyal, simpleminded, and full of misdirected anger. And that’s what we’ve got now, a lot of misdirected anger searching around for a non-target to mis-punish… can’t be mad at AIG, can’t be mad at Citi or Goldman Sachs. The real villains have to be the anti-AIG protesters! After all, those people earned those bonuses! If ever there was a textbook case of peasant thinking, it’s struggling middle-class Americans burned up in defense of taxpayer-funded bonuses to millionaires. It’s really weird stuff. And bound to get weirder, I imagine, as this crisis gets worse and more complicated.
http://www.smirkingchimp.com/thread/21289

 

[Silver]

Do you have *any* idea of what Toshi's post was about? You know, the Laffer Curve, optimal marginal tax rates, etc? I'll give you a hint, it's *not* about "soaking the rich".

I'll take "No" for $800, Alex.

 

[ohio]

it's easy to raise taxes on a constituency that is only 2-3% of the population. who cares if they don't vote for you in the next election, they are a small slice of pie.

you see, nothing panders to the populist ideal more than hating on rich people. i'm sure they didn't work hard for their money, they can take the financial hit and should be compelled to lift the country out of debt.

You're out of your element, Donnie.

 

[jimmydean]

Rich people often pay lower effective tax rates than "regular" people due to our tax system, as capital gains are taxed pretty low.

It should be the same as speeding tickets in Switzerland, taxes based on net worth as a whole and not just "income" with people like Steve Jobs pulling $1 in "salary".

 

[jimmydean]

I'll take "No" for $800, Alex.

It's the Daily Double!