A new paper suggests that the ideal tax rate for the richest Americans is 70 percent -- double the current top marginal rate. Here's the thinking, step by step:
1) If you want to make the whole country better off, the rich should pay more taxes, because one more dollar (or, the next "marginal dollar") is more valuable to somebody making $201 a week than to somebody making $20,001 a week.
2) If you want progressive taxes, the optimal top rate is the one that raises the most amount of money.
3) That rate isn't 100 percent, because at that level, people stop working, hide money, or move out of the country. The right rate isn't 10 percent either. Even if you encourage people to make boatloads of money, it's too low to raise much revenue. So the ideal level is somewhere between 10 percent and 100 percent.
4) According to a new Journal of Economic Perspectives paper on taxes by Peter Diamond and Emmanuel Saez, the ideal tax rate for soaking the rich -- i.e.: the number after which higher taxes discourage work and/or shrink the base of taxable income -- is 73 percent.
Today's the top income tax rate is 35 percent. When you factor in other federal taxes, you're at about 42 percent. So we're talking about doubling or almost doubling the top tax rate on the rich. How crazy is this?