Optimal upper marginal tax rate: 69%
Posted by Charles II on June 4, 2013
Krugman linked an executive summary of a paper by Fieldhouse that says that the upper marginal rate needs to be much higher. Krugman pegs it at 73%-80%, with the 73% being Diamond and Saez, but there’s some uncertainty about where the maximum occurs, so it could be a bit lower and, besides, those figures include federal, state, and local taxes. So the upper marginal federal rate is somewhere around 69% according to Diamond and Saez.
The main point, which shouldn’t get lost in the small uncertainty in where the optimum upper level is, is that it is well above the current upper marginal rate. If we have a deficit problem (or, if you look at our infrastructure, schools, justice system, etc. an underspending problem), then there is a pretty simple solution.
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