Taxes on the top 1% Wealthiest Americans ought to be raised.

I based this on three empirical observations:1. ) Higher tax rates reduce economic growth.2. ) More progressive tax rates reduce economic growth.3. ) Rich individuals have unusually large behavioral responses to changes in tax rates. I provided empirical evidence for all of these claims in the last round. My opponent makes the mistake of looking at each of these three points individually and arguing that, on their own, they do not make a very strong case against raising taxes on the top 1%. The mistake here is looking at each of these points in isolation. My opponent is correct that the fact that higher tax rates reduce economic growth, by itself, does not wage a strong case against taxing the rich at high rates. However, once you combine this with the fact that more progressive tax rates also reduce economic growth and that rich individuals have large behavioral responses a case for not raising taxes on the rich begins to emerge. The mechanism through which higher and more progressive tax rates harm growth is of central importance. It is supply side effects of taxation that harm growth. This means that behavioral responses to high tax rates are responsible for reduced economic growth. Behavioral responses to high tax rates, as I argued in the first round, explain most of the difference in hours worked between the USA and Europe [1]. This is important because rich people have unusually large behavioral responses to changes in tax rates. I provided evidence for this in the first round as well by showing that the ETI (elasticity of taxable income with regards to taxes) is unusually high for rich people [2]. This means that when taxes go up, taxable income of rich people goes down. There are a number of reasons for this. Greater tax avoidance is one. When tax rates are higher, investing in tax lawyers and moving income to avoid taxes makes more sense because tax avoidance brings greater rewards. Another mechanism is hours worked. In particular, tax rates affect decisions on such things such as whether or not a family will have a second earner, since this second earner's entire income will be taxed at the top marginal rate. The 1986 tax reform act significantly reduced marginal tax rates for wealthy families. This led to an increased incentive for married women to enter the workforce. Indeed, Nada Eissa of Berkeley looked at this very question by exploring the impact of the 1986 tax reform act on the labor force participation of rich, married women. She found [3]:"I find evidence that the labor supply of high-income, married women increased quite substantially after the Tax Reform Act of 1986. .. The observed responses imply an hours worked elasticity with respect to the after-tax wage that is somewhat high, in the range of 0.6 to 0.8. " In other words, lower marginal tax rates for the rich led to significantly higher labor force participation for rich, married women. The question then, of course, becomes why we should care. After all, my opponent argues, does it really matter if rich people avoid more taxes or work less? Actually, yes. It matters for a couple reasons. First, the supposed benefit of higher tax rates on the rich is more revenue for the federal government. If the rich avoid taxes more and have less taxable income in response to higher taxes, this benefit is reduced as revenues will go up by substantially less than expected. This means that the benefit of taxing the rich is much smaller when taking this into account. This also matters because the investment decisions of the rich affect the entire economy. If rich people choose to invest more in tax lawyers in response to higher tax rates, that means less investment in more productive ventures. That means less new capital for entrepreneurial ventures. Resources will go towards innefficient uses such as tax avoidance. Another point I made was the negative effect of high, progressive tax rates on entrepreneurship. My opponent responded with a number of dissapointingly weak objections. First, he has a problem with the evidence I provided that more progressive tax rates harm economic growth because it is written by a college student. This is an ad hominem attack by my opponent, but, for the sake of argument, I will provide further evidence by professional economists of the negative impact of progressive taxes. Fabio Padovana and Emma Galli looked at a large panel of countries over a 30 year period and found [4]:"We find that marginal effective tax rates and tax progressivity have a negative influence on economic growth. This negative correlation turns out to be robust after controlling for state and policy variables. " My opponent also has a problem with my claim that entrepreneurship is important for economic growth. His objection is that my source for this is "an abstract". Indeed, I did link to a study that documented the importance of entrepreneurship on growth, which includes an abstract. I am not sure I understand this objection. If my opponent doubts the importance of entrepreneurship for economic growth, I would direct him to Dr. Ercan Ekmekcioglu [5]:"Entrepreneurship leads to introduction of new goods withnew quality and value. Their innovativeness introduces new ways of production and new markets thathave not been exploited. It is through entrepreneurship that new source of supply are discovered andcreation of new business organisations that directly affect the economy. Creation of new businessopportunities through entrepreneurship, productivity and innovation leads to economic growth. This therefore means that when there is more entrepreneurship in an economy more growth is expected. "I have actually never had anyone object to the idea that entrepreneurship is good for growth. Yet, my opponent calls this a "wild idea". I look forward to hearing more about why my opponent believes that entrepreneurship being good for growth is a "wild idea". I then used a hypothetical example to show how high, progressive tax rates on the rich would reduce entrepreneurial activity. My opponent entirely missed the point of this hypothetical example. His counterargument, quite amazingly, is that $200,000 isn't the top 1%. It seems that the fact that this was simply a hypothetical situation to demonstrate the effects of taxation totally went by my opponent. I picked $200,000 as an arbitrary number just for the sake of argument. You can replace "$200,000" with "$700,000" in my hypothetical example and the same economic logic and incentives still exist. For those who are interested, I also cited a study documenting the negative effect of tax progressivity on entrepreneurship in the first round [6]. My opponent also makes the all too common argument that high taxes in some wealthy European countries is proof that high tax rates don't hurt growth. This could not be further from the truth. I do not deny for a second that countries like Germany or Sweden have high standards of living. However, this argument is specifically about economic growth. In terms of per capita GDP, the USA comes out well ahead of the countries mentioned by my opponent. The USA, according to the IMF, has a per capita GDP of about $51,704 [7]. By comparison, Sweden has a per capita GDP of $40,304 and Germany of $38,666 [7]. I will note, however, that Norway does have a higher per capita GDP than the USA. This is, however, almost certainly due to high per capita oil production, because Norway is quite rich in oil. Indeed, Norway is fifth in the world in terms of per capita oil production [8]. As I noted earlier in the debate, there is also evidence that high tax rates explain the relatively low hours worked in some European countries [1]. Current Level of Taxes on the "1%"I will agree with my opponent that whether or not one thinks the rich are paying "too much" or "too little" in taxes is largely a question of individual vales. I even acknowledged this in my original argument. My goal here was simply to show that most rich people pay tax rates of around 40%, which I think most people would find excessive. But, this is certainly a value question. MoralityMy opponent pulls a favorite tactic of advocates of higher taxes here. First, he "explains" the need for roads, police, and other public services and then argues that this somehow strengthens the case for higher taxes. This would be okay if he was arguing against someone who opposed all taxes. He is not. Instead, I am merely arguing that taxes are not too low. I think that a 40% tax rate should be more than sufficient to pay for all of the aforementioned services. If it is not, the problem would be public sector efficiency instead of low taxes. My opponent needs to realize that he is arguing for higher taxes relative to the current tax code not taxes in general. If he wants to argue that higher taxes on the rich are necessary to pay for basic services, he is free to make that argument. This argument is not, however, whether or not we should have taxes. It is whether or not the rich should pay more. Those are two very different arguments. ConclusionI thank my opponent for an excellent debate thus far. Sources1. ) . http://www.economics21.org...2.) . http://www.economics21.org...3.) . http://policydialogue.org...4.) . http://www.sciencedirect.com...5.) . http://www.academia.edu...6.) . http://www0.gsb.columbia.edu...7.) . http://www.imf.org...?8.) . http://www.nationmaster.com...