Let’s Not Kid Ourselves about 70 Percent Tax Rates

Academic justifications for 70% marginal tax rates, such as Peter Diamond and Emmanuel Saez’s, are nothing more than a veneer intended to deceive a wider audience that doesn’t know better. Diamond and Saez’s original argument for a 70% tax rate—that it would enhance both tax revenue and social welfare—ignores the long-term consequences of high tax rates on growth. They assume that taxing, redistributing, and consuming income that taxpayers would otherwise invest doesn’t reduce investment. While admitting that taxes discourage work, they similarly assume that a reduced supply of properly trained talent has no effect on the willingness of investors and entrepreneurs to take risks that grow the economy.