Originally Posted by
Hermod
The state and city income taxes are operating on the low [[left) end of the curve and movement up and down are not drivers of economic activity. Yes, people may choose to live outside the city and may choose to work outside the city to save a bit on taxes. So long as state income tax is in the 5% range and the city income tax is in the 2% range, moving them down will result in a loss of revenue.
The federal income tax rates are high enough to have an effect on economic activity. The Kennedy tax cut of 1962, the Carter tax cut of the late 70s, the Reagan tax cut of the early 80s, and bipartisan tax cuts of 1986 all caused a surge of tax receipts to the government. The Clinton tax increase of 1993 came before the 18986 tax cuts had fully phased in and didn't have as much effect as the recovering economy did. Tax receipts actually went up two years after the Bush tax cut.
You have to visualize tax rates as a curve. At a tax rate of zero, you get zero receipts. At a tax rate of 1%, you would get X receipts. At a tax rate of 2%, you should get 2*X receipts. At a tax rate of 100%, you won't get 100*X receipts, you will get zero because people will quit making money.
The curve therefore starts at zero receipts with a zero tax rate, rises to a certain value, then falls to zero at a 100% tax rate. If the purpose of the tax is to raise money for the government [[and not be social engineering or soak the rich), the optimal tax rate is where the curve flattens out and peaks.
The right has estimated that point as being a tax rate of 28%. I have yet to hear an argument from the left for any number except "more".
Where is the "sweet spot" for tax revenues?