The Corner

The Importance of Marginal Tax Rates

Reihan has already responded to the Wall Street Journal article overstating the distance between “reform conservatives” and other conservatives. The story quotes economists Glenn Hubbard and Greg Mankiw criticizing the reformers. Reihan says that he suspects “that if reform conservatives sat around a table with Hubbard and Mankiw, they’d quickly reach agreement on what a better tax code might look like.” I completely agree.

The article quotes me on the subject of marginal tax rates. Our politics sometimes exaggerates the importance of small differences in those rates, as I suggested. But high marginal rates are a problem, and we should try to lower them. I expanded on my views about tax reform in a column I wrote in June:

To be clear, we should reform our tax code along the lines these conservatives suggest. (Much better would be to replace the current system with a progressive consumption tax, as my AEI colleague Alan Viard has suggested.) In particular, we should broaden the tax base by phasing out the tax exclusion for employer-provided healthcare, the mortgage interest deduction, and the state and local tax deduction. But conservatives must prioritize their policy goals, and the rather modest economic gains from tax reform do not merit it being addressed before (at least) the three issues I discussed above.

Those three issues were long-term unemployment, the workforce participation rate of prime-age men, and our healthcare system.

In addition, here’s a policy paper I wrote on the dangers of high top marginal rates. Mankiw, far from being a critic, publicized the paper on his widely read blog.


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