Taxing Top Incomes in a World of Ideas

This paper considers top income taxation when (i) new ideas drive economic growth, (ii) the reward for successful innovation is a income, and (iii) cannot be perfectly targeted by research subsidy—think about business methods of Walmart, creation Uber, or “idea” Amazon. These conditions lead to force affecting optimal tax rate: slowing that aggregate GDP, reduces everyone’s not just at top. sharply constrains both revenue-maximizing welfare-maximizing rates.