Would a Higher Top Tax Rate Raise Revenues?

On Friday, Prof. Allan Meltzer of Carnegie Mellon University, a well-known conservative economist, offered a commentary in The Wall Street Journal arguing against policies to equalize the distribution of income.

His key piece of evidence is the chart below, from a study by the Swedish economists Jesper Roine and Daniel Waldenstrom, that shows the share of income accruing to the top 1 percent of earners in seven Western democracies. They all follow the same trend line, Professor Meltzer says, and it proves that “domestic policy can’t be the principal reason for the current spread between high earners and others.”

Leaving aside the fact that the ultrarich have gained far more in the United States than any other country in his sample and that there is no upward trend at all in the Netherlands, he seems to have missed an important implication of his own conclusion.

If the rich are going to continue to get richer in low-tax countries and high-tax countries alike, then it must mean that high tax rates have far less of a disincentive effect on the rich than conservatives like Professor Meltzer continually proclaim.

Read the rest here.