Need different thinking on cutting top marginal tax rate

Comments on Robert Carling “Tax reform should include cuts to marginal rates”, 11/03/2010, http://www.theaustralian.com.au/news/opinion/tax-reform-should-include-cuts-to-marginal-rates/story-e6frg6zo-1225839327651

While Carling uses conventional economic wisdom to argue for cuts to the marginal rates of personal income tax, there are two serious issues that just make the argument too hollow.

The first one is a practical one that the GST was quarantined from the Henry review, so there is little room for tradeoffs between income taxes and consumption taxes. Given that most State taxes are more inefficient than the federal income taxes, one has to wonder how any government can design a reduction in the marginal rates of personal income tax, unless it is tradeoffs between higher and low rates that are politically not feasible.

The second one is theoretical. Conventional economic wisdom states the harmful or disincentive of higher top marginal rates on work that is logical thinking. But that logic thinking may also have some practical holes. For example, the top marginal rate may only apply to a small number of people; the so called harmful effects are minimal. More importantly, high income earners are more likely to be intellectual and entrepreneurial, so the conventional labor and disincentive to work of using labor may not necessarily hold.

Taking into account of issues of social equity, the case for arguing a reduction in top marginal personal income tax rate is neither sound nor convincing.

So it seems Carling is too theoretical and surreal.