Key Issue: How does Kamala’s taxation policy need to change ?
Kamala Harris's current tax platform proposes increasing the top individual tax rate to 39.6%. However, research indicates that more moderate top marginal rates, in the 35-45% range, would better balance revenue generation with growth incentives. The high elasticity of taxable income for top earners suggests that rates above this range can significantly discourage economic activity.
On capital gains, Harris's plan to raise taxes to 28-33% for high-income individuals may hinder investment and innovation. Studies show lower capital gains rates, typically 15-20%, are more effective at stimulating investment in new technologies and entrepreneurial ventures. Harris could explore a sliding scale based on holding periods to further incentivize long-term capital allocation.
While Harris calls for raising the corporate tax rate to 28%, a more nuanced approach may be warranted. Maintaining a lower corporate rate, potentially in the 21-25% range, combined with targeted incentives for R&D spending and repatriation of foreign earnings for domestic investment, could better position the U.S. for global competitiveness and spur corporate innovation.
Harris's platform does not emphasize tax code simplification, which research indicates can improve economic efficiency by broadening the base and lowering overall rates. Incorporating proposals to streamline the tax system, while maintaining progressive elements like expanded tax credits, could create a more growth-oriented environment conducive to full employment, low inflation, and technological investment.
By adjusting her tax program to align with these research-backed principles, Harris can develop a comprehensive policy approach that better supports long-term economic prosperity and innovation.
To align with research-backed principles for promoting economic growth, full employment, and technological innovation, Kamala Harris's tax program needs to evolve in several key areas:
Moderate top marginal rates: Harris should consider lowering her proposed top individual tax rate to the 35-45% range, rather than maintaining the current 37% or potentially higher rates. This adjustment would better balance revenue generation with growth incentives, as research indicates rates above this range can significantly discourage economic activity.
Capital gains treatment: Her proposal to increase capital gains taxes to 28-33% for high earners should be reconsidered. A rate in the 15-20% range for long-term capital gains would more effectively stimulate investment and innovation, according to economic studies. She could explore a sliding scale based on holding periods to encourage long-term investment.
Corporate tax strategy: While Harris proposes raising the corporate tax rate to 28%, a more nuanced approach is needed. She should consider maintaining a lower rate, possibly 21-25%, with additional incentives for R&D investment and repatriation of foreign earnings for domestic investment. This would better position the U.S. for global competitiveness and encourage corporate innovation.
Simplification and base broadening: Harris's current platform doesn't emphasize tax code simplification. She should incorporate proposals to broaden the tax base while lowering overall rates, which research shows can improve economic efficiency and reduce distortions. This could include limiting certain deductions and loopholes while lowering statutory rates.
Bottom line
Harris needs to shift her tax program from its current focus on increasing rates and expanding credits to a more growth-oriented approach. This means adopting more moderate top rates, lower capital gains taxes, a competitive corporate tax strategy, and overall tax code simplification. By making these adjustments, her program would better align with economic research on promoting full employment, encouraging technological investment, and fostering sustainable economic growth.