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Before the Senate Committee on Finance Tax Reform Options: Marginal Rates on High-Income Taxpayers, Capital Gains, and Dividends

By Leonard E. Burman, Daniel Patrick, Moynihan Professor and Public Affairs


me to testify on tax reform options affecting high-income taxpayers. I applaud the committee for devoting much of the past year to examining ways to make the tax code simpler, fairer, and more conducive to economic growth, and I’m honored to be asked to contribute to those deliberations. In summary, here are my main points: Economic theory suggests that the degree of progressivity should balance the gains from mitigating economic inequality and risk-sharing against the costs in terms of disincentives created by higher tax rates. The optimal top tax rate depends on social norms and the government’s revenue needs. Experience and a range of empirical evidence suggests that the rates in effect in the 1990s would not unduly diminish economic growth. However, a more efficient option would be to broaden the base (reform or eliminate tax expenditures and eliminate loopholes) to achieve distributional goals while keeping top rates relatively low. � The biggest loophole is the lower tax rate on capital gains. Several bipartisan tax refor

Year: 2011
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