Taxing Top Earners: The revenue maximizing top tax rate is approximately 49 percent in a quantitative human capital model, instead of the recently established view of 73pct

Taxing Top Earners: A Human Capital Perspective. Alejandro Badel, Mark Huggett, Wenlan Luo. July 9, 2018. http://faculty.georgetown.edu/mh5/research/top-earners.pdf

Abstract: An established view is that the revenue maximizing top tax rate for the US is approximately 73percent. The revenue maximizing top tax rate is approximately 49 percent in a quantitative human capital model. The key reason for the lower top tax rate is the presence of two new forces not captured by the model underlying the established view. These new forces are strengthened by the endogenous response of top earners’ human capital to a change in the top tax rate.

Keywords: Human Capital, Marginal Tax Rates, Top Earners, Laffer Curve