In the early 1980's, right wing economist Art Laffer created the "Laffer Curve". This was essentially a hump curve that said that an effective tax rate of 50% will gain the government the most revenue, while tax rates of 0% and 100% would obviosuly result in the government taking in zero revenue or very close to it.
When taking into account the 6.2% Social Security payroll tax(which ends up being close to 0% for the wealthiest because they stop paying these taxes after around $105,000) and the 2% Medicare payroll as well as state taxes being around 5%-6%, a top federal rate at 39.6% will pretty much bring the effective rate up to that magical, revenue maximizing 50%.
Lets take a look at what happened in the early 2000's, when Bush cut the top rate from 39.6% to 35% and in the 1990's, when Clinton raised the top rate from 31% to 39.6%
The Bush cut from 39.6% to 35% went into affect in 2004 and lets look at the percentage annual revenue increase after the change went into affect:
Year % Increase in Revenues
2004 4.5%
2005 9.5%
2006 11.5%
2007 9.9%
2008 -9%
Avg: 5.28%
Now lets look at what happened when Clinton's increase from 31% to 39.6% went into affect in 1994.
Year % Increase in Revenues
1994 6.8%
1995 7%
1996 7.5%
1997 3.1%
1998 13%
Avg: 7.48%
Now 2005, 2006, and 2007 are obviously distorted by the height of the housing bubble which is partially cancelled out by the tech bubble in 1998, but on average, we saw better annual revenue growth under the 39.6% tax rate than the 35% rate by over 2%.
We should bring back the 39.6% rate immediately.