Emmanuel Saez on Taxes and Elasticity

Matthew Yglesias » Emmanuel Saez on Taxes and Elasticity:
See Saez's paper:
“The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review”
"First, they report that there’s little support for the idea that increases in marginal tax rates harm the economy but reducing people’s incentives to work. Studies, in other words, show low levels of labor supply elasticity with respect to marginal tax rates. But they observe that other forms of economic distortion are possible. And you can get a comprehensive look at them by looking at the comprehensive elasticity of taxable income.

In the US context, there seems to be a fair amount of such elasticity. And the elasticity is concentrated among taxpayers who itemize their deductions, and especially among high-income taxpayers. ...if you’re trying to raise some extra revenue from wealthy taxpayers it’s probably better to do that by curbing deductions than by raising rates. ...there seems to be a fair chance that growth could be boosted significantly by a broad tax reform that eliminates loopholes and lowers rates."

Median Federal Tax Rate Chart -Bartlet

The Washington Monthly: "TAXES, IN CONTEXT.... Last week, Bruce Bartlett, a former Treasury Department economist in the Bush administration, wrote an interesting column comparing U.S. tax rates with countries around the world. Bartlett, a conservative, found that the United States 'is a relatively low-tax country no matter how you slice the data.' In 2006, total taxation (federal, state and local) amounted to 28% of the GDP. Of the 30 countries in the Organization for Economic Cooperation and Development, only four had a lower tax ratio than the U.S.

But, conservatives said, who cares what kind of taxes are imposed by other industrialized democracies? Since when do we care? So, this week, Bartlett went with a different approach, comparing the current U.S. tax structure with recent generations.
bartlett.JPG

The exercise is straightforward enough. Bartlett identified the 'effective federal income tax rate -- taxes paid as a share of income -- for a family with the median income. The median is the exact middle of the income distribution -- half of families are above and half are below. It's as close as we can get, statistically, to the typical American family.'

He found that the median family, in the most recent year available, "paid 5.91% of its income to the federal government in the form of income taxes." In 1981, the median family paid double, and current rates are "well below the rate that prevailed from the 1950s through the 1990s."

What's more, the 2009 numbers are almost certainly lower than 2007, thanks to Obama's middle-class tax cut."

Income Gaps Hit Record Levels In 2006, New Data Show — Center on Budget and Policy Priorities

Income Gaps Hit Record Levels In 2006, New Data Show — Center on Budget and Policy Priorities: "Taken together with prior research, the new data suggest greater income concentration at the top than at any time since 1929. [2] The data precede the current recession, which is likely to reduce the income of the wealthiest Americans substantially, given the decline in the stock market, and thereby shrink somewhat the income gap between rich and poor households. But there was a similar development when the dot.com bubble burst a few years ago — income at the top of the income scale fell sharply — and it turned out to be just a speed bump. Incomes at the top more than made up the lost ground from 2004 to 2006.

Economist Debate: Should the rich pay higher taxes?

Defending the motion

Professor Thomas Piketty Professor of Economics at the Paris School of Economics (PSE)

Let me give three reasons why I believe the rich should pay higher taxes. For the sake of concreteness, let us say that we are talking about introducing an 80% marginal tax rate on all annual incomes in excess of €1m, leaving the rest of the tax system unchanged.

Against the motion

Mr Chris Edwards Director of Tax Policy Studies, Cato Institute

Should the rich pay higher taxes? Definitely not. Governments do not need any more money, and they misallocate much of what they already take from us. Furthermore, taxation imposes large deadweight losses on the economy, which makes us all poorer.

Closing statements