Wednesday, December 07, 2011

Raising Taxes on the Rich: Not Whether, but How

Following astonishing displays of political cowardice in the U.S. about tax hikes for the wealthiest Americans Bruce Bartlett has a useful article on the New York Times Economix site. It's a useful article not just for its core argument - that cutting taxes for lower- and middle-income people and paying for it with higher taxes for higher-income people, as Democrats have proposed, is unambiguously stimulative to the economy.

It notes:
  • Studies by the Congressional Budget Office (CBO) showing that certain spending programs are highly stimulative, whereas tax cuts provide very little bang for the buck.
  • Studies by the CBO and by Anthony Atkinson, Thomas Piketty and Emmanuel Saez demonstrating beyond doubt that there has been a sharp rise in the income and wealth of the ultra-rich while everyone else’s income has stagnated.
  • Work by the Tax Policy Center demonstrating that higher tax rates don't necessarily lead to a race to the exits by the rich, and that they do raise revenue.
  • Recent studies by Peter Diamond and Emmanuel Saez and by A.B. Atkinson and Andrew Leigh find that increasing the top income tax rate would raise net additional revenue at least until it reached 63 percent and probably much higher (this is the so-called "Laffer Curve" debate).
  • Studies (here and here) showing that tax cuts for the rich have not raised the rate of economic growth.

And there is plenty more in there. Bartlett notes:

Republicans like to pretend that cutting spending is economically costless, even stimulative, whereas raising taxes in any way whatsoever is so economically debilitating that it dare not be contemplated. This view is complete nonsense.

Overall, a useful article.


Anonymous Economic Survivor said...

The main difficulty I see, aside from finding politicians not on the take and therefore willing to cooperate, would be defining what is "rich". Should someone earning $400,000 a year be penalised if the company they built up is employing a workforce of perhaps 20, 500 or 10,000 workers?

4:38 am  

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