The richest Americans currently pay a 35 percent tax on income over a certain threshold. This is a divisive subject between the two major parties that is sure to come up in the general election. Both Mitt Romney and Rick Santorum propose plans that would lower the rate to 28 percent. Newt Gingrich's plan includes a flat tax of just 15 percent. Obama favors returning the pre-Bush tax cut rate of 39 percent.
Proponents of lowering this rate argue that higher marginal tax rates retard productivity for the highest earners, since they are reluctant to work as hard if the bulk of their income is taxed at too high of rate. Lower the rate, the thinking goes, and the rich are incentivized to earn more, thus increasing the total tax revenue and putting more money into the economy.
Democrats point to studies like that of the Congressional Budget Office, which found that cutting income tax by 10 percent would reduce revenues by $466 billion in five years and another $775 billion in the next fiveRead More »from The imaginary connection between tax rates and GDP