In 1989, Senator Bob Packwood asked Congress’s Joint Committee on Taxation how much extra revenue the government would raise if it just started taxing 100% of all income over $200,000 per year. The Joint Committee crunched some numbers and reported an answer: $204 billion per year.
a. What is wrong with this answer?
b. Under Packwood’s proposal, what would the marginal tax rate be at $250,000 per year? At $500,000 per year?
Packwood asked the Joint Committee this question not because he wanted to raise taxes that high, but to make a point. The tale of his efforts—and the efforts of Ronald Reagan, Dan Rostenkowski, Bill Bradley, and many others—to improve the U.S. tax code in the 1980s is compellingly told in Birnbaum and Murray’s book Showdown at Gucci Gulch: Legislators, Lobbyists, and the Triumph of Tax Reform.