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[taxwonk]

Originally posted by Mmmm, Burger (C.J.)
You're right on the first paragraph, at least on the "far" side of the curve. But if the tax rate were, say, 90%, on marginal income over $1m, would Oprah keep working? Not so sure. 99%? Probably not (of course, they'd find ways of getting non-taxable income instead "Oprah--today on location in Hawaii; tomorrow on location in Tahiti".) At some tax rate, people will see so little of the income that they would prefer to get their utility from non-taxable sources--i.e., leisure.

Aggregated across the economy, the effect will be more pronounced. The question is what is that tax rate at which in increased tax from a higher rate is more than offset by lower income to be taxed in the first place. The princple is no different than what is the profit maximizing price for a monopolist.

The reason Reagan had so much belief in the Laffer curve was, apparently, his experience in Hollywood. When he was an actor, the tax rate was something like 95%. Actors would earn enough from one film to hit that bracket. So they would do one film a year. At least, that's the anecdote I recall from Stockman's book.

You're heading for the extreme again. At a 95% tax rate, I agree with what you're saying entirely. When you start talking about the effect at rates of say, 28% vs. 35%, I don't think the principle applies. Neither tax rate is high enough to change income earning behavior.