Ceteris Paribus, Taxes Edition PDF Print E-mail
Written by King Banaian   
Wednesday, 21 May 2008 06:59

Janet wrote me asking if I would post on this article by David Ranson in today's WSJ. It's long been a theme of the Journal's editorial board that no matter what the top individual income tax rate is, you get the same level of tax revenue. Now I find that interesting, given that we are told the Laffer curve works by the very same people, and the Laffer curve clearly says that variations in tax rates will yield variations in tax revenue (just sometimes in the opposite direction.)

Any time I think about these marginal tax rate changes that Ranson draws on, however, I am pretty sure I can find changes in the base on which the tax is collected. When we drop the marginal tax rate, there's worry that "the government is losing money", so we need to make that tax change "revenue neutral". As the Tax Foundation points out, that is in essence giving one group a tax cut while shifting the cost of that cut onto someone else, so that Uncle Sugar stays in sweetness.

It would be great to find natural experiments where the marginal tax rate is cut and the legal definition of the tax base is unchanged. But darned if I can think of one.

Cross-posted and comments welcome at SCSU Scholars.