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Rising Taxes Don't Sink Rich Boats

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For decades, American politicians and economists have debated the merits of soaking the rich through taxes.

Now University of Chicago economist Austan Goolsbee has thrown an academic hand grenade into the debate. In effect, his work says that boosting taxes on the rich, as President Clinton and Congress did in 1993, worked. It raised revenues. It did no more damage to the economy than any other type of tax hike.

The rich play a key role in the United States economy. The top 1 percent of taxpayers provide almost 29 percent of federal personal income tax revenues. The wealthiest 1 percent of Americans owned almost 32 percent of net worth and 46 percent of financial wealth in 1992.

They have economic clout.

President Reagan was influenced by supply-side economists views that easing the tax burden on the prosperous would boost the economy - create a rising tide that lifts all boats. The rich would work harder, invest more.

In his first term, Congress cut the maximum federal income tax rate from 71 to 50 percent. In Mr. Reagan's second term, the rate fell further, to 28 percent. Both the economy and the stock market boomed, although subsequent studies have shown that the rich were the primary beneficiaries.

Mr. Clinton took a different view, that the rich weren't paying their fair share in taxes, and ran for office partly on that platform. So in 1993, Congress raised the marginal tax rate from 31 percent to 39.6 percent for income greater than $250,000 - still low, historically.

Conservative economists said the measure wouldn't raise revenues because the prosperous would take measures to avoid taxes and cut back on their efforts to bolster their businesses and their own incomes. They would trim savings and damage the economy.


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