oh, and the Laffer curve is total BS

[allen]

From the CBO
projected deficit for 2014: $475 billion


estimated GDP for 2014: $17,606 billion


From the CIA Fact Book

estimated GDP for 2007: $14,560 billion


From the IRS, 2007 tax statistics
number of income tax returns with adjusted gross incomes over $1 million: 391,261

total income of those earners: $1,401,087,152,000

taxable income of that $1.4 trillion: $1,243,801,387,000

2007 GDP = 14,560. est for 2014=$17,606 billion. so that's a 20.85% increase. if we scale linearly:

taxable income: $1,503,133,000,000
# of filers: call it 400,000
amount of taxable income over $1,000,000: $1,103,133,000,000


additional tax surcharge required to balance budget using only income of over $1 million: 43%



current highest tax bracket: 35%

new $1 million tax bracket that would cover the entire 2014 deficit: 78%

So if somebody is worried about future US deficits, then maybe we should start by proposing a new 78% tax bracket for all income over $1 million (with the associated AMT and capital gains taxes to make it stick). And we can negotiate from there.

Comments

[nathanjw]

Well, we had a 70% highest marginal rate until 1981; there was a 77% rate in 1969, and a top rate over 90% from 1951-1963. I really don't want to take the postwar period as representative, but this seems entirely plausible. I would like to hear from some folks on the incidence of tax cheating as it compares to high marginal rates.

I'd also like to compare this to corporate income taxes - my understanding is that we have relatively high marginal rates, by international standards, but enough loopholes to drive a Citibank-sized truck through, so the actual tax incidence is comparatively low.

The capital gains tax is an curious beast. It's not clear that it should exist at all (that is, capital gains should just be income, not that they should be untaxed).

[allen]

Right. So a 78% real marginal rate over is totally reasonable, as long as you can break free of the whole myth of Reaganomics.

Corporate taxes are kind of tricky, especially since it's a lot easier for a corporation to relocate to a tax haven than it is for a human. And, if you're thinking of targeting high marginal incomes, it's also a lot easier to split up a corporation into a bunch of smaller-earning chunks. So humans are probably a better target.

Capital gains.... Yeah. I mean, I think that the AMT (if set high enough) would effectively work around those. I can certainly understand why you might want to tax capital gains at a beneficial rate for lower-income earners--encouraging saving, home ownership, etc. But, really, if you're making $50 million in a year, do we really need to encourage investing that money? It's not like there's anything else to do with it.

[nathanjw]

Also, my pedant hat compels me to point out that, mathematically, the Laffer curve is true *somewhere* on the 0-to-100% tax range. Certainly not where we are now, and probably not where you propose, but still.

[allen]

<pedant>For non-edge cases, the effect of the Laffer curve is small enough to fall within the margin of error, and therefore may almost always safely be ignored.</pedant>

[mrmorse.livejournal.com]

I remember reading, several years ago, a series of posts on the blog Angry Bear which came to the conclusion that based on the existing historical evidence, the Laffer curve reaches its maximum (that is, tax revenue is maximized) when the top marginal tax rate is between 50-60%. Which is not much less than the top marginal rate around the time that the Laffer curve became a popular argument for reducing taxes, and certainly higher than it is now.

I tend to think that the social benefits of having a higher tax rate than that would outweigh any negative impact on economic growth, but I'd be happy if anyone started making a Laffer curve based argument for raising taxes.

[dougo]

I'd be happy if anyone started making a Laffer curve based argument for raising taxes.

Apparently, 19th century Republicans did that.

[allen]

I'd be interested in seeing those calculations. I would think that there wouldn't be an actual optimal rate that would apply in general to all situations. I mean, first of all, I'd think that a graduated tax system could be better optimized than a flat tax, and would probably give you a lot more leeway to have a really high top tax rate.

Second of all, though, I'd imagine that the particular economic situation would have a big effect which tax rates are optimal. If you're in a situation like now, where we have a serious demand problem, and there's plenty of easy money available but nobody wants to spend it, we'd probably be better off with really high marginal tax rates. But in (hmm, interesting) a stagflation-type situation, where you have to raise interest rates in the face of a poor economy, it might be appropriate to lower top income tax rates in order to encourage investment.

But yeah, I'd think that if you have to err on one side or the other, the social benefits of a high marginal tax rate for high earners makes it the obvious candidate.

[mrmorse.livejournal.com]

cactus at Angry Bear wrote a very long series of posts based on comparing economic measures under Democrats to under Republicans. Here is a representative post about the Laffer curve. These were all empirical, so cactus looked at actual economic data as the marginal tax rate changed to attempt to determine the maximum in the curve. There isn't a lot of data, and there are obvious missing data points, but the results are at least suggestive.

This was part of a very long series which mostly looked at performance relative to which party was in power. The short conclusion is that almost regardless of what measurements you use for economic performance and for political power, the Democrats come out ahead.

[mrmorse.livejournal.com]

I went to the trouble of embedding the link in a tag so the huge URL wouldn't spew all over the comment box. Apparently I wasn't entirely successful.

[allen]

Yeah. DW/LJ doesn't allow links in comments from OpenID users for spam-related reasons. You might be able to validate your OpenID account to get around that, though I don't actually know for sure.

[allen]

You know, given the postscript summary at the bottom:

Tax rates fall leading to greater concentration of income at the high end, as tax cuts tend to be focused on the high income earners. While this doesn't lead to increased growth in the economy as a whole (and possibly leads to slower growth overall), it does increase the amount of income that is subject to taxes, leading to (in the long run) greater taxes being collected. Ironically, this policy of benefiting high income individuals also benefits the government, but not most of the population. Somehow this doesn't strike me as being the way Laffer tells it, but unlike with the supply-siders story, it does seem to fit the facts.

I'd be inclined to say that my original statement is correct: the Laffer curve is total BS. Given that the Laffer argument is that, by having lower marginal tax rates for high earners, you make the economy grow faster and thus make up for the lost revenue through growth. According to the numbers, that just doesn't happen. (Which isn't to say that there isn't a relationship between GDP, tax receipts, and marginal tax rates, just that it's not the one that Laffer proposed.)

[nerdranting.livejournal.com]

The Laffer curve is basically the fundamental theorem of Calculus, isn't it? (Taxes collected at rate 0%: 0. Taxes collected at rate 100%: 0. We have empirical evidence that we actually DO collect taxes at a rate somewhere in the middle. So there must be a peak somewhere.)

I don't think that actually is the fundamental theorem of calculus, but it's close.