Consider a situation where the tax rate of the middle-income bracket falls from 23% to 20.5%, while increasing the top federal tax rate on income greater than $200,000 from 29% to 33%.

Total Federal Tax Bracket= $200,000

Average Income of Earners Within the Top Bracket = $480,000

# Of Filers in the top bracket= 310,000

Federal Loss from the Middle bracket tax cut= $3 billion

A) Using the same elasticity of taxable income used by Milligan and Smart ( e=0.664), is this taxation policy considered to be revenue neutral?

B) what are possible problems with using e=0.664?