Warren Buffet wrote an op ed in the NY Times last week (http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1&smid=tw-nytimesbusiness&seid=auto) about raising taxes on the rich. I replied on my NABE group's LinkedIn wall with the following:
Mr. Buffet's statement however, is outrageous. His inductive reasoning that just because he has never seen it it must not exist is childlike at best, though methinks he sounds like a fool.
Mr. Buffet is not thinking like an economist, that is, thinking about the margins. Saying that a raise from 15% to 25% does nothing begs the question, what about 25 to 26? Then 26 to 27? The only logical conclusion one can reach based on Mr. Buffet's broad idea that taxes on potential gains have no effect on capital investment is that people would still invest if the tax rate was 100%! Surely Mr. Buffet himself would not invest if any gains he made were to be taken from him by the tax man. Again, one can think about the margins and work backwards from 100. A 99% tax rate would get more investment than a 100% rate, all else equal. 98% more still. And so on and so on down to 0, which would surely get the most investment.
People can genuinely debate how many individuals are affected by a change in any given level of taxation, but to take the ridiculous stance that raising and/or lowering taxes from any level does nothing is to defy common sense.