More On The Danger Of Higher Marginal Tax Rates

See Megan McArdle and Kevin Drum on the Impact of Marginal Tax Rates by Reihan Salam of The National Review. Excerpt:

"In particular, they finds that 32% of a labor tax cut, and 51% of a capital tax cut are self-financing, in the sense that lowering those taxes raises economy activity, which itself generates additional taxes, and partially offsets lower tax revenue.

By the same token, higher taxes – particularly higher capital gains taxes – will reduce economic activity, especially in the long run. This will result in a substantial amount of foregone income, as a result of the “deadweight loss” incurred through taxation. As the tax rate approaches the top of the Laffer curve, this loss grows higher and higher.

In other words, future tax hikes, which are necessary to pay for the projected path of spending, will come at a high cost. Even if they are sufficient to balance the budget and eliminate the deficit, and even if higher tax rates still result in more revenue, high taxes will still result in less output for all Americans."