Economists Recommend a Tax Rate of 90% on 1 Percenters?

Some economists are recommending that the federal government raise marginal tax rates to 90% on 1 percenters, the 1% of Americans who make hugely “unequal” sums of money a year.

Marginal tax rates are taxes on amounts above a certain amount. So a 90% tax rate wouldn’t liquidate 1 percenters entirely. It would just mean they paid a 90% tax on any amount over $406,750. So 1 percenters would pay a “normal” tax rate on any income they made under a certain amount. For instance, if someone made $406,751 in a year, a 90% marginal tax rate would mean they paid ninety cents of their extra dollar in taxes.

It’s hard to understand why economists don’t get that this would seriously discourage anyone from having aspirations to become one of the 1 percenters. If you have a 90% tax on any money made over a certain amount, it seems to me that no one would be trying to make more than that amount, right? Apparently, the economists don’t get this:

The paper assumes that tax rates won’t stop a future Bill Gates from wanting to start Microsoft. Instead, what it finds is that labor supply among the 1 percent would decline — translation, they would work a little less — but it “does not collapse.” That’s because of who the authors assume makes up the top income bracket: celebrities, sports stars, and entrepreneurs — people with innate talents that are hugely rewarding, but only for a short period of time. They only have a few years to use their skills to make most of the money they will ever make. High tax rates don’t lessen their degree of desire to be productive, the authors said.

Krueger described the phenomenon like this: “How much less hard would LeBron James play basketball if he were taxed at a much higher rate? The answer is not much. James knows he only has five years,” or so of peak earning potential, Krueger said, and so he will work to make as much as he can during that time. If high income tax rates robbed the would-be 1 percent of their stick-to-itiveness, the paper’s conclusions would change.

Ummm. If LeBron James basically couldn’t use any of the income he made over a certain amount, don’t you think that would affect how he negotiated his salary? Why would he try to get more than $406,750 a year if any excess amount is basically useless to him? And if he has only five years of peak productivity, you have basically stolen everything from him. He needs those five years of high income to fund the rest of his otherwise unproductive life, right?

This paper is seriously the stupidest thing ever. It is always a bad idea to penalize people for wanting to make more money. Would a 90% marginal tax rate basically destroy 1 percenters? Yes. But it’s hard to say how that would greatly benefit anyone else.