In January, as part of a deal to avert the fiscal cliff, Congress increased marginal tax rates on higher-income earners to Clinton-era levels while preserving existing Bush-era rates for most taxpayers. By boosting rates for the rich, Congress is banking on the notion that tax increases will deliver much-needed revenue for the government without unduly damaging the economy. The bet is that high earners will keep working despite Uncle Sam’s taking a bigger bite out of their income. In the short run, writes Veronique de Rugy, this might well be true. But the longer run is much more complicated.
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