What Is the Revenue-Maximizing Tax Rate?
3 Pages Posted: 22 Feb 2012
Date Written: February 20, 2012
Barack Obama has proposed raising taxes on the well-to-do, both for revenue and distributional reasons. This raises, anew, the question of what the revenue-maximizing top rate is. Conservatives continually assert that the United States is always on the wrong side of the "Laffer Curve," such that a tax rate reduction will increase revenues. A review of recent literature on this subject, however, indicates that the top tax rate could rise very substantially before a further increase would lead to lower revenues. Estimates suggest that this rate is at least 63 percent and probably much higher.
Keywords: Laffer Curve, tax rates
JEL Classification: K34, H20
Suggested Citation: Suggested Citation