Too often, policy research relies more on the misleadingly elegant
results of economic theory than on actual evidence. Tax policy
discussions, as I will describe below, are especially prone to being
infected by this evidence-free approach to analysis. Fortunately, two of
the best public finance economists in the world, Peter Diamond and
Emmanuel Saez, have recently provided a much-needed antidote. ... [T]hey summarized the best available research and, based on that evidence, made three specific recommendations:
- “Very high earnings should be subject to rising marginal rates and higher rates than current U.S. policy for top earners,"
- “Tax (and transfer) policy toward low earners should include
subsidization of earnings and should phase out the subsidization at a
relatively high rate,” and
- “Capital income should be taxed.” ...
Diamond and Saez do not merely say that the evidence is lacking to support the conventional superstitions about taxes, but that the evidence supports the opposite conclusions: that marginal tax rates on high incomes should be increased, that lower incomes should be subsidized, and that capital income should be taxed.
Diamond and Saez are not writing on a blank slate. They are debunking received wisdom, exposing shibboleths that legal scholars need to un-learn if scholarship in taxation is to move forward, fulfilling its promise to guide policymakers toward wise decisions. For legal scholars with interests in tax policy, this is the essential article to read.