Tuesday, March 13, 2012

More evidence that Republican economic theory is nonsense

I guess I've said it dozens of times: there is absolutely no evidence that raising the tax rate on the wealthy will cause them to stop investing and creating jobs and all the nice things that they are supposed to do.

Certainly if the top rate were, say 100%, there would be no incentive to earn more than the cut-off for this marginal rate. On the other hand, if the top rate were really low -- say 15% -- the revenue gained would be inconsequential. So, somewhere in between 15% and 100% there is an optimal rate at which the maximum revenue for the IRS would be gained -- a rate still low enough so that there would be no disincentive for the wealthy to earn in that bracket.

What is this optimal rate? To listen to Republicans one would think that it might be at most 25% (grudgingly -- they'd rather not tax the wealthy at all). It turns out that it is at least 70% and probably higher. Remember, of course, that this rate would only apply to income greater than a certain amount -- certainly in the 6 figures. No one -- not even the most liberal Democrats -- are proposing such a high rate. But it is sustainable, would still leave the very rich with plenty of incentive, and go a long way to reducing our deficits. The wealthy used to pay that much -- back in the days of Eisenhower -- and paid as much as 50% even as recently as Reagan. But most of them don't like to pay taxes, so their enablers, the Republicans, have invented all sorts of fantasies to justify cuts in their rates. And the Democrats, including Obama, are afraid to call them on it.

If you don't believe me, check out what Bruce Bartlett has to say in today's Times. Bartlett held senior policy positions in both the Reagan and Bush I administrations, and was on the staffs of such non-liberals as Jack Kemp and Ron Paul.

Like nearly everything that Republicans have to say these days, there is almost nothing factual in their economic arguments. They make it up as they go along.

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