R. Glenn Hubbard, Columbia Business School professor and former Chairman of (current) President Bush's Council of Economic Advisers, has an editorial in yesterday's Wall Street Journal titled "Let's Talk Taxes." (As usual, the WSJ online version requires a subscription.) Not surprisingly, the editorial waxes positive on the administration's tax cuts, and makes a case for making them permanent. But Professor Hubbard is a serious contributor to the literature on the effects of tax policy, and supports his argument with some of his own research:
... the progressive income tax imposes a "success tax"... If this success tax is high enough, a prospective entrepreneur may forgo a risky venture to continue working for someone else.
How important is this effect? Using data on U.S. households, William Gentry and I found that the "success tax" has a potent negative effect on entry into entrepreneurship. We estimated that President Clinton's 1993 tax increase, which raised substantially the top individual income-tax rate, reduced the probability of entry for upper-middle-income households by as much as 20%...
Mr. Gentry and I estimated that cuts in marginal tax rates also increased the likelihood that employees change jobs to improve their well-being.
Hubbard also cites research by a group of co-authors (including the deputy secretary of the Treasury, the head of the Congressional Budget Office, and a current member of the Council of Economic Advisors) indicating that "higher taxes on business owners lower the probability that their firms will hire workers."