On Thu, 27 Jul 2000, Michael Pollak wrote:
> It's the magic of marginal rates. Maybe this would be clearer with a
> single rich person...Now let's say we raise the top bracket to 40%, a
33% rise. Does his tax bite go up 33%?
> 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.
That works for a single person, but not for the rich as a group in the expanding economy. Their might have been a limited yield in a static economy, but the top 1% were already being taxed at the highest rate in 1993. So all of the gross income increase that they enjoyed since then was earned at that highest marginal tax rate. Since the income tax they paid doubled from 1993 to 2000 (from $500 billion to nearly $1 trillion), at least that additional $500 billion of income tax receipts should have come from that highest rate level, even ignoring whatever other income they shunted off to capital gains.
Some of the wealthy are just marginally into the highest bracket but the exponential concentration of income means that much of that income is solidly over the line and the growth of the last seven years has almost all been over that line.
Yes, there are many loopholes for cutting taxes, but that applied to the old rates and the new rates, so a 33% increase in rates given this income surge does not inevitably yield less receipts than the marginal increase. Given the games that are played, I have no doubt that it did.
Maybe Max has the numbers available on changes in effective tax rates from 1993 to 2000. That is really the key number. I have been searching for them, but have not been able to turn them up.
-- Nathan Newman