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Friday, November 30, 2012

Excessive focus on progressive taxation can make it hard to curb inequality

Excessive focus on progressive taxation can make it hard to curb inequality

From the piece:

Now a dollar raised from the rich is more redistributive than a dollar raised from the non-rich. But getting hung up on this can cause problems. For example, you could raise $1.3 trillion by capping itemized deductions at $25,000 a year. And this would be a strongly progressive tax hike that leaves the vast majority of middle class families unscathed while overwhelmingly raising money from high-income households. But the White House rejects this idea on the grounds that it doesn't raise taxes on literally zero middle class households. Then Jason Furman and Gene Sperling go on to point out that if you structure the rate cap so as to raise no money on households with less than $250,000 AGI you can't raise very much money.

The lesson they take from this is that we should reject the deduction cap approach. But the correct lesson to take is simply that dogmatism about the $250,000 point makes it impossible to tap a potentially rich vein of tax revenue.

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