One difference between the Democrats and Republicans is whether to let the Bush II tax cuts expire. From the graph above we see the Kennedy tax cuts (from 91% down to 70%) in 1962; the Reagan tax cuts (from 70% to 28%) in the early 1980's; the Bush I (28% to 35%) tax increases; the Clinton tax increases (from 35% to 39%); and the Bush II tax cuts (from 39% to 35%).
Some economists predict a big negative effect on tax collections because elasticity of tax receipts with respect to marginal tax rates is big for high income taxpayers; but small for low income tax payers. This means that the tax cuts for low and middle income workers will produce a big drop in tax receipts and the tax increases on high income workers will produce a small increase in tax receipts.
Historical note: no Republican's (not Goldwater, not Bob Dole) supported the Kennedy tax cuts. How things have changed.
Why are changes in the top marginal tax rate used to define a tax cut or tax hike?
ReplyDeleteIt seems to me that massaging the size of the brackets can have as much or more impact than changing the marginal rate.
The biggest impacts (highest elasticities), especially today, when the top 1% of taxpayers pays 39% of federal income taxes, is from the top marginal rates.
ReplyDeleteI will look and try to find some info on the lower rates.
here is some info on highest and lowest marginal tax rates.
ReplyDeletehttp://www.ntu.org/main/page.php?PageID=19
The following article in FT is worth noting
ReplyDeletehttp://www.ft.com/cms/s/0/67b2fca6-8bb0-11dc-af4d-0000779fd2ac.html