On Wed, 26 Jul 2000, Nathan Newman wrote:
> Here the 1993 bill raised the top rate by 30% and you are arguing that
> it delivered only 5% more revenue per year
It's the magic of marginal rates. Maybe this would be clearer with a single rich person. Let's say rates are 10%, 20% and 30% and kick in at $0, $50,000 and $100,000. A guy who makes $150,000 is in the 30% bracket, but he doesn't pay $45,000 (which would be 30% of his income). He pays $30,000: $5,000 on the first $50,000, $10,000 on the second 50 and $15,000 on the third. So his average tax -- the share of his income that goes to the government -- is 20%
Now let's say we raise the top bracket to 40%, a 33% rise. Does his tax bite go up 33%? No -- by the nature of the case, it can only ever go up a fraction of that, since that raise is only on a fraction of his earnings. Under the raised rate, he would now pay $35,000: $5,000 on the first $50,000, $10,000 on the second 50, and $20,000 on the third. And voila! A 33% raise in the rate for the top bracket have forced this fellow to cough up at extra $5,000 -- which is to say the government is getting another 3.33% of his income.
I believe it's chiefly machinations like that, and not any theory of supply side taxation, that Max is relying on to explain why a 33% tax hike yielded 5-7% more of the income of the rich.
Also this leaves out the fact that if part of this fellow's money was in capital gains, the tax on that portion would have gone down, and that would also have to be taken into account in any fair before and after picture of how much more the rich are paying thanks to Clinton. And of course it also leaves out everything really rich people can do to reduce their "income" by calling it something else which I'm sure muddies up the water something awful. But the long and short of it is that there is no mystery why a "33% hike" in the top rate (measured as a percentage of what top raters were originally paying, rather than as the increase in the percentage share of their income going to taxes) necessarily has to yield far less than that to the government.
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com