Paul Krugman has a fascinating post today considering a paper by Peter Diamond and Emmanuel Saez that tries to suss out the “optimal” marginal tax rate on the rich. In this case, the paper defines “optimal” as the tax rate that raises the most money (i.e, the rate before you hit the wrong side of the Laffer curve). According to their read of the literature, that rate is about 70 percent.
Cue the horrified cries. These are the job creators we’re talking about, after all! Well, maybe. But as this chart from the Center for American Progress shows, we’ve set the top tax rate above 70 percent before, and the economy has done pretty well:
Meanwhile, the key argument in Washington right now is whether the top tax rate will rise to 39.6 percent or remain at 35 percent.