Yglesias highlights a paper from Diamond and Saez on optimal taxation.

As an illustration using the different elasticity estimates of Gruber and Saez (2002) for high income earners mentioned above, the optimal top tax rate using the current taxable income base (and ignoring tax externalities) would be τ*=1/(1+1.5 x 0.57)=54 percent while the optimal top tax rate using a broader income base with no deductions would be τ=1/(1+1.5 x 0.17)=80 percent. Taking as fixed state and payroll tax rates, such rates correspond to top federal income tax rates equal to 48 and 76 percent, respectively.

I see some confusion on this issue so I just want to point out the following. The optimal tax rate, the peak of the Laffer Curve, and the tax rate that maximizes GDP are all different things. Moreover, they can have almost any relationship to one another.

That is it could be that the optimal tax rate is 20%, the Laffer Curve could peak at 40% and GDP be  maximized at 60%.

To get GDP maximization higher than the Laffer Peak and the optimal tax rate requires unusual set up, but if – similar to China – you are using the tax rate to perform financial repression on households, it is possible.

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