Must-Read: Well, that was a very interesting election night. Our failure in 2000 to introduce into the running code (as opposed to the specification document) of our constitution that electors switch votes so that the national popular vote winner wins the electoral college cost us dear in 2000, and may cost us even more today...
You may ask: How is one to judge what to do in such times? The answer is clear: As one has ever judged. Good and evil have not changed since yesteryear, nor are they one thing among Elves and another among Men. It is a human's part to discern them, as much in the Golden Wood as in his own house. What would have been good policy yesterday would still be good policy today. What would have been bad policy yesterday would still be bad policy today. So we play our position.
Donald Trump has said that he plans to change the tax code so that people like him would pay much higher taxes. Donald Trump's tax plan sets forth tax law changes that would lead to rich people paying much lower taxes. This presents us with a problem: Is Donald Trump's tax plan the document that says it is Donald Trump's tax plan or is it what Donald Trump has said he plans to do about taxes? Your guess is as good as mine.
In thinking about tax policy, however, it is important to stress what the historical experience of the past four decades tells us about taxing the rich in the United States. Raising taxes on the rich:
- Raises about 80% of the revenue that a "static" calculation suggests.
- Generates resources that can be used to pay for government programs or to finance tax cuts elsewhere and so make the tax system more progressive.
- because of the small revenue loss, has benefits in that making the tax code more progressive raises societal well-being, unless you have a strong belief that the current distribution of income is the equitable one.
- has no noticeable negative and might have a small positive effect on economic growth.
Emmanuel Saez:
Emmanuel Saez: Taxing the Rich More: "Donald Trump proposes to cut taxes on the rich...
...This policy decision is particularly important because the concentration of income at the top is extremely high. The share of total pre-tax income earned by the top 1 percent of families has more than doubled from 8.9 percent in 1975 to 22 percent in 2015. Progressive taxation historically is the most powerful tool to reduce income concentration. The classic counter argument is that higher top tax rates might discourage economic activity among the rich.... In 2013, a surtax on high earners was levied to help pay for the Affordable Care Act at the same time as the 2001 tax cuts for high-income earners that were signed into law by President George W. Bush expired. The 2013 tax increase on high earners was the largest since the 1950s, and larger than the previous increase of the top tax rate by the Clinton administration in 1993.... The average federal tax rate—comprised of all federal taxes (individual, corporate, and payroll)—on the top 1 percent of income earners rose by 5 points, from 29 percent before 2013 to 34 percent in 2013....
How did the 2013 tax increase affect the behavior of the rich and the pre-tax incomes they reported on their tax returns?... After President Obama was re-elected in early November 2012, it was virtually certain that top income tax rates would go up in 2013. For the rich, shifting $100 of income from 2013 to 2012 saves $9 in taxes for capital income (and $6 for labor income), which means the rich had strong incentives to accelerate their incomes into 2012 to benefit from the lower 2012 tax rates and avoid the higher 2013 tax rates.... This retiming response is large—income earners in the top 1 percent shifted about 10 percent of their income from 2013 into 2012. Lost government tax revenues, however, were modest as income shifted into 2012 still were taxed at the 2012 rates.... The government lost only about 20 percent of the projected revenue increase for 2013 due to these retiming responses....
In the medium-term... the share of national income going to the top 1 percent income resumed its upward trend.... The 2013 tax increase depressed pre-tax top incomes only temporarily in 2013.... Raising taxes on the rich is an efficient way to raise additional revenue, as the rich do not respond much to the higher tax rates in the medium term. I estimate that only about 20 percent of the projected revenue increase from the 2013 tax hike is lost due to the behavioral responses over the medium term.... These findings echo the findings of earlier work analyzing the 1993 Clinton era tax increase.... The best growth experience for the bottom 99 percent of income earners over the past 25 years took place in the mid-to-late 1990s and between 2013 and 2015—after tax increases on the rich. This suggests that taxing the rich more does not have detrimental effects on the broader economy...
