The share of pre-tax income accruing to the top 1% of earners in
the U.S. has more than doubled to about 20% in 2010 from less
than 10% in the 1970s. At the same time, the average federal
income tax rate on top earners has declined significantly. Given
the large current and projected deficits, should the top 1% be
taxed more? Because U.S. income concentration is now so high,
the potential tax revenue at stake is large. But will taxable
incomes of the top 1% respond to a tax increase by declining so
much that revenue rises very little or even drops? In other
words, are we already near or beyond the peak of the famous
Laffer Curve, the revenue-maximizing tax rate? The Laffer Curve
is used to illustrate the concept of taxable income
"elasticity,"—i.e., that taxable income will change in response
to a change in the rate of taxation. Top earners can, of course,
move taxable income between years to subject them to lower tax
rates, for example, by changing the timing of charitable
donations and realized capital gain