On FOX News' Special Report with Brit Hume, conservative economist Martin Feldstein argued that marginal tax rates -- i.e., the tax rate paid on the last dollar of income -- are too high because “when you earn an extra $100, if you're the typical taxpayer, about 40 of those dollars go in taxes.” In fact, this statistic is false. Even the group Feldstein leads, the National Bureau of Economic Research (NBER), has calculated that the average combined marginal tax rates for federal and state taxes in 2004 are 25 percent for wages; 26 percent for interest income; 22 percent for dividends; and 26 percent for pensions.
On the December 15 edition of Special Report, Hume asked Feldstein what changes were necessary in the tax code. Feldstein called for a tax cut:
HUME: Now, part of the discussion at today's event [a White House economic conference] was the tax code and what to do about the tax code. What in your view as an economist, looking at the economy as a whole, needs to be cured about the tax code as it affects the economy overall?
FELDSTEIN: Well, of course the most fundamental problems are high marginal tax rates.
HUME: That means what?
FELDSTEIN: That when you earn an extra $100, if you're the typical taxpayer, about 40 of those dollars go in taxes.
In addition to being president of NBER, Feldstein is an economics professor at Harvard University, a former chairman of the Council of Economic Advisors in the Reagan administration (1982-84), and one of the original proponents of supply-side economics.