WonkBlog: Should The Top Tax Rate Be 73%?

Dylan Matthews writes on The Washington Post’s Wonkblog:

Most arguments about tax brackets in the United States are over a percentage point or two. Obama wants the top rate to rise 4.6 points to 39.6 percent; Republicans want it to stay at 35 percent. Despite the revenue costs of low rates, some self-styled deficit hawks want the top rate to go even lower. Simpson-Bowles and Domenici-Rivlin, for instance, both put it at 28 percent.

But some tax experts think this is all much too timid. Two economists, Nobel laureate Peter Diamond at MIT and Emmanuel Saez at Berkeley, have argued that the optimal top bracket is 73 percent, higher than at any point in the United States since the 1960s. Many analysts get sticker shock at that number, but the Diamond/Saez paper lacked a detailed response until AEI released a paper by Aparna Mathur, Sita Slavov and Michael Strain attempting to debunk it.