The case for higher taxes on the wealthy

[1939]

2. What is the purpose of taxes?

Is the purpose to punish the rich for being rich, to choose winners and losers in the economy, or to maximize government resources to deal with government expenditures?

If the purpose of taxes is to raise revenues for government functions, raising the rate might not always be the way to go.

Lets say we want to determine the appropriate rate of taxation for income in the one million plus bracket. If we tax that income at zero percent, we will get zero dollars in return. If we tax that income at 1%, we will get X dollars into the government coffers. If we tax that income at 2%, we will get 2X dollars.

At a tax rate of 100%, we will not get 100X dollars, we will get virtually zero dollars because only people who miscalculated and earned over $1 million will pay any taxes on it.

What we have then is a curve plotted with tax rate on the X axis and government income from the taxes on the Y axis. The curve starts with X= 0 and Y=0 and goes to X=100, and Y=0. In other words, government income rises steadily, begins to lvel off, reaches a peak, and then declines back to near zero.

For the purposes of government income there is a "sweet spot" which is a tax rate which is the maximum that the government can realize out of income over $1 mill.

I would like to see a good economic analysis as to where that "sweet spot" is The only one who ever addressed where such a sweet spot might be was GOP Rep Armey who said it was 28%. I would like to see such an analysis done by an unbiased source.