Tax Rates and Growth

Last week, I took a look at optimal tax rates, the top rates of income tax which economic research suggests would maximize revenue if implemented as policy. The research suggested that for every 1% higher the top rate of income tax rises, the rich report 0.25% less income. This suggested an optimal top rate of between 73 and 80%. Toward the end of that post, I suggested that it might be the case that even as the rich report lower earnings, the economy as a whole might operate more efficiently at those high rates, if the government is more effective at investment than the private sector. Today I’d like to look at some empirical data to see if there’s any historical basis for that claim. Read the rest of this entry »