The optimal rate of income taxation

An established view is that the revenue maximizing top tax rate for the US is approximately 73 percent. The revenue maximizing top tax rate is approximately 49 percent in a quantitative human capital model. The key reason for the lower top tax rate is the presence of two new forces not captured by the model underlying the established view. These new forces are strengthened by the endogenous response of top earners’ human capital to a change in the top tax rate.

That is from a recent paper by Badel, Huggett, and Luo, via Scott Winship.


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