The Cost of a 70 Percent Marginal Tax Rate
7 Pages Posted: 30 Oct 2020
Date Written: September 10, 2020
Proposals for raising the maximum statutory tax rate to 70 percent, with dual objectives of generating additional revenue for new spending and curtailing inequality, are gaining attention among both academics and media commentators.
While the idea might be superficially attractive, there is little reason to believe that a 70 percent marginal tax rate will generate greater revenue or help lower-income Americans — or that it will accomplish these goals with minimal effect on the economy. On the contrary, similar marginal tax increases in neighboring Canada in 2015 actually produced less revenue: high-income earners paid billions less owing to behavioral adjustment. Higher tax rates, broadly speaking, discourage people from acquiring skills that could increase income and discourage businesses from expanding. In addition, research on the effects of these tax rates shows they will lower wage growth for lower-income American workers. Comparisons to historic norms about tax rates ignore the past four decades of globalization and international tax changes. Lastly, in the context of new spending proposals, this tax change is neither sufficient nor desirable.
Keywords: Taxation, Disincentives, Tax Avoidance
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