Taxing the Rich Won't Raise Much Money. Cutting Their Taxes Won't Either.
Concrete Evidence (February 2, 2026)
We conservatives love hearing about the unintended consequences of government policies—perhaps to a fault. Our ears perk up if you say that affirmative action hurts minorities, welfare increases poverty, gun control emboldens criminals, seat belt laws just make people drive faster, or tax hikes reduce government revenue.
That last one, of course, refers to the famous Laffer Curve, drawn on a napkin by the economist Art Laffer in the 1970s. The point is simple: A 0 percent income tax won’t raise any tax revenue, obviously. A 100 percent tax won’t raise much either, because it eliminates the incentive to earn money. Between those two extremes, there must be a hump-shaped curve, where revenue rises as tax rates increase, but then eventually falls. If you’re on the right side of the curve, raising taxes would have the unintended effect of reducing revenue.
But what does the curve actually look like in practice—especially for the very highest tax bracket, affecting the nation’s very highest earners? Might the dreaded “tax cuts for the rich” actually increase revenue? Or might this effect kick in only at rates much higher than we have now, meaning we have plenty of room to soak the rich?
This is a hard problem. But a fascinating new study, written by a trio of economists from Congress’s Joint Committee on Taxation, takes a crack at it, using more sophisticated methods than previous work has employed. Its intriguing title gives away its main finding: “Laffer Curves Are Flat.” We won’t raise money by cutting the top rate, it concludes, but we won’t raise very much by increasing it either.
Let’s take a look at how it reaches this conclusion.
The U.S. tax system is incredibly complicated, and it shapes people’s incentives in many different ways simultaneously. Modeling how these incentives shape behavior is difficult and highly subjective—after all, it’s not like we’re going to run an experiment where people’s tax rates are set between 0 percent and 100 percent at random to measure the effect with confidence (and even that wouldn’t measure how tax policy affects the broader economy).
Instead, the study’s authors use a model of the U.S. economy that was developed to analyze tax legislation. It was developed with the benefit of detailed tax records, including data on extremely high earners, and accounts for the tax system’s complexity: the brackets, deductions, different treatment of corporations and “pass-through” businesses, and various other factors.
The model can simulate how tax rates change behavior across several dimensions. For example, those facing higher income taxes may have less incentive to earn money and more incentive to shift their income into other areas of the tax system, such as the corporate sector. Both changes affect their total tax payments and the economy’s future growth.
If you believe the new modeling, the Laffer Curve is indeed pretty flat. Hiking the top tax rate from 37 percent to 45 percent would raise federal income-tax revenue by around 1 percent—perhaps more impressive than it sounds, given that fewer than 1 percent of taxpayers reach the top bracket and not all of their income is taxed at the highest rate. But past that, there’s little effect all the way up to 55 percent, at which point revenue declines.
The authors also run models that factor in how the top income-tax rate affects revenue from other types of taxes, such as state and local taxes. In these cases, even the modest revenue boost discussed above is far smaller.
The paper’s authors argue that, within a fairly broad range, hikes to the top income tax rate would pose a tradeoff between economic growth and the tax system’s progressivity more than one between higher and lower revenue, since growth and progressivity actually do change when you boost the top rate.
There are some policy implications here, cutting against common talking points on both sides of the aisle.
On the one hand, we’re not at the point where tax cuts on the nation’s highest earners magically pay for themselves. On the other, pushing up the top tax bracket clearly won’t solve all our fiscal woes by itself.
Most importantly, if we’re going to consider tax hikes on the rich—and I suspect we’ll be hiking taxes on pretty much everyone, soon enough, to handle our growing debt—we should pay special attention to how their behavior might change in response, both in terms of reduced economic activity, and in terms of shifting income toward types that are taxed less. We can’t force anyone to work, but we certainly can change corporate and capital-gains taxes along with the top income-tax rate to keep the system balanced.
From the Manhattan Institute
Chris Pope notes that, for most workers, the expanded Obamacare subsidies are more generous than their employer-provided plans. If the subsidies are made permanent, could some employers stop providing insurance for their workers’ benefit?
Other Work of Note
A fascinating study of how the media covers gun violence. For example, shootings in minority neighborhoods tend to get less coverage, but police shootings in minority neighborhoods tend to get more.
The RAND Corporation has updated its huge overview of research on gun-policy topics. I recommend looking past the overall conclusions down to the summaries of individual studies (which I often find more varied and inconclusive than the top-line summaries suggest).
What does it cost to put troops in U.S. cities?
Mixed-at-best results for the use of exenatide (a GLP-1) for alcoholism.
AI hurt the market for people who draw anime- and manga-style art.
New census data suggest a decline in illegal immigration.
Unsurprisingly, people take jobs farther from home when they need to go to the office less.
How do college majors contribute to earning gaps by race and sex? And are a lot of black men missing from the surveys we use to measure such things?
How different types of exercise correlate with mortality risk.
How the Purdue Pharma Supreme Court case shaped bankruptcy law.
Videos of police grappling suspects tend to be seen more positively than videos of cops striking suspects
Happy Monday, all.