Their model finds that the optimal tax rate on inheritance could be 50-60% or more.
Different structures to the economy lead to these various numbers, optimal tax rates, the size of the multiplier, being different.
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According to an article in The Concise Encyclopedia of Economics, Lucas also did important work on the optimal tax structure.
There is an optimal tax level to maximise tax income, the same type of curve applies to government and economic strength.
Yet even if Lord Layard's theory is right, his figure for the optimal tax rate looks like little more than convenient guesswork.
There was even a Nobel awarded (Sir James Mirrlees) for pointing out that the optimal tax on returns to capital is zero.
Somewhere out there is an optimal tax rate that will create the win-win of private gain along with more tax dollars to meet current obligations and reduce debt.
The assumptions that lead to this being the optimal tax rate are based on the US experience: that people cannot simply leave the country to escape high income tax.
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This optimal tax argument suggests that if we expect government spending to rise as a share of the economy (because of demographics, aging, health care, for example), it would be better to raise taxes now (that is run surpluses) to prevent a much larger increase in taxes in the future.
What is that optimal top tax rate?
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All we are really saying is that there are optimal revenue raising tax rates.
Others argue that in a system that has an income tax, the estate tax will always be less efficient than setting the income tax at optimal rates.
Economists argue about the disincentive effects of higher tax rates. (Messrs Piketty and Saez, the economists who have transformed analysis of income concentration at the top, reckon, controversially, that the optimal top income-tax rate could be as high as 80%.) But no one doubts that there are trade-offs.
Have a tax rate higher than that optimal rate and revenue collected will fall in total.
Statutory rates were too high, and deductions and exemptions too many, to make either tax collections efficient or economic activity optimal.
There are two things that can be done to make it more of an optimal zone: one is a central treasury operation and the tax redistribution that comes with that.
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In his opening remarks at the session Paulson said the business tax system in the U.S. is "clearly not optimal, " adding that it should not discourage either inward or outward investment flows.
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