Hey, let's raise the top income tax bracket to 84%

But a working paper issued in February by the National Bureau of Economic Research and co-written by the former chair of President Obama’s Council of Economic Advisors, Christina Romer, and her husband David, suggests that tax rates have a much lower effect on investing and labor decisions than previously thought. In fact, the paper argues that revenue-maximizing tax rate is as high as 84%.

The paper also finds that taxes generally have less effect on behavior than previously thought. What separates this study from others of its kind is that it looks at tax rates in the period between the two world wars, as opposed to more recent times. The advantage of this approach is that there were many changes in the marginal tax rates during this time, giving researchers many opportunities to study how those changes effect citizen behavior. In addition, the income tax regime during this period was much more progressive than it is now. For instance, for most of the period studied, the top 1/200th of one percent of earners bore between 30 and 40 percent of the total federal income tax burden.

As Baseline Scenario blogger James Kwak argues, these are the folks who would most likely change their behavior based on tax rates. They have enough money to stop working if they wanted to, but the evidence suggests that this is not what people do. Kwak argues that the real danger is not that the wealthy will stop working, but that they’ll pour more and more resources into shielding their income from taxes, and that a simplified tax code is should therefore be a priority.