US

Taxes

Question A:

All else equal, permanently raising the federal marginal tax rate on ordinary income by 1 percentage point for those in the top (i.e., currently 35%) tax bracket would increase federal tax revenue over the next 10 years.

Responses weighted by each expert's confidence

Question B:

The cumulative budget shortfalls in the US over the next 10 years can be reduced by half (or more) purely by increasing the federal marginal tax rate on ordinary income for those in the top tax bracket.

Responses weighted by each expert's confidence

Question A Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Strongly Agree
6
Bio/Vote History
Disincentive effects on labor supply and entrepreneurship, and tax avoidance are likely, but not large enough to reduce revenues.
Alesina
Alberto Alesina
Harvard
Agree
8
Bio/Vote History
Altonji
Joseph Altonji
Yale
Strongly Agree
9
Bio/Vote History
The labor supply literature strongly suggests that the revenue gain from a higher rate will outweigh a small reduction in labor supply.
Auerbach
Alan Auerbach
Berkeley
Agree
8
Bio/Vote History
Autor
David Autor
MIT
Strongly Agree
9
Bio/Vote History
We are nowhere near the downward sloping side of the Laffer curve.
Baicker
Katherine Baicker
University of Chicago
Agree
7
Bio/Vote History
Bigger question is what the economic cost would be, but unlikely to be so large that revenues would actually decline.
Bertrand
Marianne Bertrand
Chicago
Strongly Agree
5
Bio/Vote History
Chetty
Raj Chetty
Harvard
Strongly Agree
10
Bio/Vote History
Chevalier
Judith Chevalier
Yale
Strongly Agree
9
Bio/Vote History
The behavioral response cannot possibly be big enough to wipe out the revenue gains.
Currie
Janet Currie
Princeton
Agree
8
Bio/Vote History
There are many people in the top bracket, and while some would be able to change their behavior to offset the increased tax, not all would.
Cutler
David Cutler
Harvard
Strongly Agree
8
Bio/Vote History
The elasticities are not that high.
Deaton
Angus Deaton
Princeton
Strongly Agree
8
Bio/Vote History
This seems quite clear.
Duffie
Darrell Duffie
Stanford
Agree
6
Bio/Vote History
Is the net effect on revenues negative because of the impacts on avoidance and earning efforts? That's not clear, but probably not.
Edlin
Aaron Edlin
Berkeley
Agree
7
Bio/Vote History
Labor elasticity should be less than 1 and might in fact go either way. Federal Revenue could be used in helpful ways.
Eichengreen
Barry Eichengreen
Berkeley
Agree
6
Bio/Vote History
Fair
Ray Fair
Yale
Strongly Agree
10
Bio/Vote History
This would not put us on the bad part of the Laffer curve.
Goldberg
Pinelopi Goldberg
Yale
Agree
6
Bio/Vote History
A 1% increase seems too small to impact hours worked, productivity or consumption in the top bracket.
Goldin
Claudia Goldin
Harvard
Agree
2
Bio/Vote History
There are some good estimates showing that higher taxes at the top nets more income. Labor SS response is low as is falsification of income
Goolsbee
Austan Goolsbee
Chicago Did Not Answer Bio/Vote History
Greenstone
Michael Greenstone
University of Chicago
Agree
8
Bio/Vote History
CBO's analysis indicates that the Bush tax cuts reduced revenue so presumably undoing part of this decrease in rates would increase revenue.
-see background information here
Hall
Robert Hall
Stanford
Uncertain
3
Bio/Vote History
Close call. Depends on enforcement efforts. Prior to 1986, taxpayers in the high bracket seemed to be willing to buy inefficient shelters.
Holmström
Bengt Holmström
MIT
Agree
8
Bio/Vote History
Hoxby
Caroline Hoxby
Stanford Did Not Answer Bio/Vote History
Judd
Kenneth Judd
Stanford
Agree
7
Bio/Vote History
Some activities will change little, such as labor supply, but some will increase tax avoidance efforts. My guess is a weak revenue increase.
Kashyap
Anil Kashyap
Chicago Booth
Strongly Agree
7
Bio/Vote History
Klenow
Pete Klenow
Stanford
Agree
7
Bio/Vote History
Forecasting the forecast of others (Chetty, Saez, ...).
-see background information here
Lazear
Edward Lazear
Stanford
Agree
8
Bio/Vote History
Revenue would rise, but the important question is what happens to growth, not revenue. The goal is not to maximize the size of government.
Levin
Jonathan Levin
Stanford
Agree
6
Bio/Vote History
Saez puts top of the Laffer curve above 60%, suggesting we're well to the left.
Nordhaus
William Nordhaus
Yale
Strongly Agree
8
Bio/Vote History
Weight of evidence on personal tax rate with some reservations about other (state and local) taxes and other interactions.
Obstfeld
Maurice Obstfeld
Berkeley
Strongly Agree
7
Bio/Vote History
It is doubtful such a small tax increase would materially affect behavior.
Rouse
Cecilia Rouse
Princeton
Agree
6
Bio/Vote History
Saez
Emmanuel Saez
Berkeley
Strongly Agree
10
Bio/Vote History
Based on best estimates and even with current tax code, US top rate is still significantly below revenue maximizing tax rate
Scheinkman
José Scheinkman
Columbia University
Strongly Agree
6
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Agree
4
Bio/Vote History
Shin
Hyun Song Shin
Princeton
Agree
7
Bio/Vote History
Stock
James Stock
Harvard
Agree
4
Bio/Vote History
Stokey
Nancy Stokey
University of Chicago
Strongly Agree
9
Bio/Vote History
There is a Laffer Curve, but 35% is to the left of the peak.
Thaler
Richard Thaler
Chicago Booth
Strongly Agree
8
Bio/Vote History
The Laffer curve should have stayed on the napkin.
Udry
Christopher Udry
Northwestern
Strongly Agree
9
Bio/Vote History
Zingales
Luigi Zingales
Chicago Booth
Strongly Agree
8
Bio/Vote History
The negative effect on growth would have to be huge to offset the tax revenues raised.

Question B Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Strongly Disagree
6
Bio/Vote History
More comprehensive increases in taxes and reduction in tax expenditures, or preferably systematic means testing of SS-Medicare are necessary
Alesina
Alberto Alesina
Harvard
Strongly Disagree
10
Bio/Vote History
Altonji
Joseph Altonji
Yale
Disagree
8
Bio/Vote History
Broad based tax reform and reductions in projected expenditures, particularly on health, will be required.
Auerbach
Alan Auerbach
Berkeley
Strongly Disagree
9
Bio/Vote History
Autor
David Autor
MIT
Disagree
6
Bio/Vote History
Unfortunately, not enough income there to do it (I think)
Baicker
Katherine Baicker
University of Chicago
Uncertain
6
Bio/Vote History
I think depends on how shortfall defined (current law vs. current policy, etc.) - but not a good idea in either case, esp. in longer run.
Bertrand
Marianne Bertrand
Chicago
Uncertain
5
Bio/Vote History
Chetty
Raj Chetty
Harvard
Disagree
9
Bio/Vote History
Chevalier
Judith Chevalier
Yale
Uncertain
5
Bio/Vote History
My back of the envelope suggests no, but I think a PF person would have more of the numbers at their disposal.
Currie
Janet Currie
Princeton
Disagree
8
Bio/Vote History
Medicare (and to a lesser extent Social Security) are big drivers of the deficit, so changes are necessary to bring it under control.
Cutler
David Cutler
Harvard
Uncertain
5
Bio/Vote History
I don't know offhand what the estimates are at different elasticities.
Deaton
Angus Deaton
Princeton
Uncertain
1
Bio/Vote History
I don't know the magnitudes well enough to know whether or not this is likely to be the case.
Duffie
Darrell Duffie
Stanford
Uncertain
2
Bio/Vote History
It is a difficult question (for me at least).
Edlin
Aaron Edlin
Berkeley
Disagree
8
Bio/Vote History
According to CBO estimates, maybe if rates go sky high. According to Gale and Auerbach, deficit far too big. links on my webpage.
-see background information here
Eichengreen
Barry Eichengreen
Berkeley
Disagree
7
Bio/Vote History
Fair
Ray Fair
Yale
No Opinion
Bio/Vote History
I don't know the tax distribution data well enough.
Goldberg
Pinelopi Goldberg
Yale
Disagree
6
Bio/Vote History
Tremendous uncertainty around these projections. Also, given the complexity of the tax code, taxpayers find ways around specific rate hikes
Goldin
Claudia Goldin
Harvard
Uncertain
2
Bio/Vote History
Don't have any idea if it would be one-half. That seems rather large. But if it were true -- let's do it.
Goolsbee
Austan Goolsbee
Chicago Did Not Answer Bio/Vote History
Greenstone
Michael Greenstone
University of Chicago
Disagree
4
Bio/Vote History
Unknown elasticities and unclear baseline (do other Bush tax cuts expire? future of Medicaid/Medicaid?) make it very difficult to evaluate
Hall
Robert Hall
Stanford
Disagree
5
Bio/Vote History
There's a CBO-style "current law" assumption here that is hard to deal with--does the AMT come back in its old form or continue to be cut?
Holmström
Bengt Holmström
MIT
Disagree
7
Bio/Vote History
Hoxby
Caroline Hoxby
Stanford Did Not Answer Bio/Vote History
Judd
Kenneth Judd
Stanford
Strongly Disagree
9
Bio/Vote History
The rich don't have that much money, and would respond with substantial increases in tax avoidance activities.
Kashyap
Anil Kashyap
Chicago Booth
Disagree
7
Bio/Vote History
Too many ways to shift income. If the rate becomes very high labor supply will probably fall. Everyone will have to pay to cut the deficits
Klenow
Pete Klenow
Stanford
Strongly Disagree
7
Bio/Vote History
Doesn't look close according to these calculations (see link).
-see background information here
-see background information here
Lazear
Edward Lazear
Stanford
Disagree
8
Bio/Vote History
Using the President's numbers, the gaps are too big, more so if we go beyond 10 years. Scoring of tax increase do not show big deficit cuts.
Levin
Jonathan Levin
Stanford
Strongly Disagree
7
Bio/Vote History
How could this be? CBO projects $1tr annual deficits. Annual income tax revenues from $500+k earners are now $350bn. We're going to 3x this?
Nordhaus
William Nordhaus
Yale
Disagree
8
Bio/Vote History
Close call. With 10 yr CBO baseline def of $6 tr, indiv inc taxes of $19 tr, top 1% pays 40% of that, 50% rate. If really "purely," then no.
-see background information here
Obstfeld
Maurice Obstfeld
Berkeley
Disagree
7
Bio/Vote History
The budget shortfalls are too large to be covered on this income tax base. Both tax and entitlement reform will be needed.
Rouse
Cecilia Rouse
Princeton
Uncertain
6
Bio/Vote History
Saez
Emmanuel Saez
Berkeley
Disagree
9
Bio/Vote History
Enough income at top to cut deficit by 50%+ but need to go after it after base broadening not solely by increasing current ordinary top rate
Scheinkman
José Scheinkman
Columbia University
Disagree
4
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Strongly Disagree
4
Bio/Vote History
Shin
Hyun Song Shin
Princeton
Disagree
7
Bio/Vote History
Stock
James Stock
Harvard
Disagree
4
Bio/Vote History
Stokey
Nancy Stokey
University of Chicago
Strongly Disagree
8
Bio/Vote History
The top bracket is a very small group. Maybe with the top 10% of the income distribution. But how are we defining "budget shortfalls"?
Thaler
Richard Thaler
Chicago Booth
Disagree
7
Bio/Vote History
Only a small part of the puzzle. Tax reform anyone?
Udry
Christopher Udry
Northwestern
Agree
6
Bio/Vote History
Zingales
Luigi Zingales
Chicago Booth
Strongly Disagree
10
Bio/Vote History
cumulative deficit is 10 trillion. taxable income at the 35% 600 billions. to halve the deficit you will need 100% tax rate. Impossible