Thursday, April 15, 2010

Do tax cuts increase the incentive to work?

Art Laffer is laughing:
Over the past half century, the top marginal tax rate has fallen from 91 percent in the 1950s and early 1960s to 35 percent today.  Thus, the amount a person gets to keep at the margin has risen from 9 percent to 65 percent, that is, by a factor of 7.2.  If the elasticity of taxable income with respect to 1-t is one, as some studies find for high-income taxpayers, then the incomes of the rich would have risen by a factor of 7.2 as well.  If the elasticity is one-half, then their incomes would have risen by a factor of 2.7.  In either case, the change in pretax income attributable to the tax cuts is substantial.

1 comment:

  1. You should change the "Art Laffer is laughing" link to

    It is best to use the permanent links, they are found at the bottom of each post next to the email symbol.