The Washington Post editorial board expressed skepticism on Monday about raising taxes on America’s wealthiest individuals, a solution often favored by many progressive thinkers. Their editorial, titled “Little to gain by raising taxes on the wealthy,” references a study by three economists from the Joint Committee on Taxation. This research suggests that making significant adjustments to top tax rates, particularly those aimed at maximizing revenue, only yields minor increases in government income.
The article points out that for politicians aiming to boost taxes on the rich, the results might be disappointing. The editorial claims that higher taxes may not translate into noticeably increased funding, especially as economic growth slows down. The Post also mentions data showing an exodus from California to states that encourage growth, implying that this trend is a deliberate choice.
The referenced study, written by Rachel Moore, Brandon Pecoraro, and David Splinter, utilizes the “Laffer Curve” to analyze the balance between upper tax rates and revenue. They concluded that the tax rate most effective for maximizing total revenue while keeping the rest of the tax structure consistent sits at 39 percent, which would only elevate revenue by a mere 0.21 percent over the long haul. Rates between 30 and 45 percent tend to produce similar increases in revenue. Additionally, the editorial noted that rising rates beyond this range might actually reduce overall revenue.
The Post emphasized the significance of examining how federal taxes interact with state and local taxes. They argued that if an increase in federal revenue leads to a decrease in state and local incomes, it ultimately undermines the rationale for raising taxes, as states may seek funds from the federal government.
Minimizing the exact tax rate that would yield maximum returns, the report emphasizes the broader issue of trade-offs between tax progression and economic growth. The economists suggest that small changes in top tax rates often result in much larger declines in economic growth.
In a broader context aligning with traditionally conservative views, the editorial insisted that a more progressive tax code might actually shrink the economy, warning that even slight hikes in the top rate could lead to millions of fewer jobs and trillions in economic value lost.
Referencing data from the Congressional Budget Office (CBO), the board noted that the federal tax and transfer system has effectively reduced income inequality. While the share of income for the top one percent has grown, so too has their share of the federal tax burden. The CBO reports indicate that social insurance, taxes, and transfers significantly decrease income inequality.
The editorial concludes by suggesting that making the already progressive income tax system somewhat more progressive isn’t a productive endeavor.
