Skip to comments.The Folly of Soaking the Rich
Posted on 07/04/2011 12:29:47 PM PDT by rhema
The chart Andrew Stiles referred to Friday (from an earlier post by Veronique de Rugy) shows only the start of how counterproductive it is to increase taxes on the wealthy. As a result of lower tax rates on the top income earners, not only do they pay a much larger share of all taxes, but they pay much more taxes total and revenue to the government has increased. This is because lowering taxes on the rich creates more rich people and richer rich people. The federal government gets much more revenue if you impose a 40 percent tax on a large number of very wealthy millionaires than if you impose a 70 percent tax on a small number of less wealthy millionaires.
Every tax has a revenue-maximizing point well short of 100 percent. If a tax is set higher than its revenue-maximizing point, overall tax revenue to the government will decrease. This is the basic theory behind the Laffer Curve, which states that when taxes are zero percent, revenue to the government is (obviously) zero, but when taxes are 100 percent, revenue to the government is also zero, because by taxing all the income of a particular group of people, you kill all economic activity in that group, so youre left with nothing to tax. Between those two extremes is a curve whereby revenue to the government rises as you increase taxes from zero percent, but begins to fall as you approach 100 percent taxation thats the Laffer Curve.
Arthur Laffer and Ford Scudder explore this phenomenon at length in their brilliant series The Onslaught from the Left. In keeping with what Veronique pointed out, they write, in Part II of the series:
In the year Ronald Reagan took office (1981) the top 1% of income earners as reflected by the Adjusted Gross Income of all tax filers paid 17.58 % of all federal income taxes. Twenty-five years later, in 2005 the top 1% paid 39.8% of all income taxes, representing a greater than doubling of the share of tax payments made by this group.
But even more to the point, from 1981 to 2005 the income taxes paid by the top 1% rose from 1.59% of GDP to 2.96% of GDP. In addition to the huge rise in the percent of GDP paid in income taxes by the top 1% of income earners and the more than doubling of the share of taxes paid by this group was the huge absolute increase in real taxes (2005 dollars using the GDP price deflator [in other words, adjusting for inflation - ML]) from 1981 through 2005. In 1981 total tax payments from from the richest 1% were $98.84 billion, while in 2005 the top 1% paid $368.13 billion in taxes; thats a 288% increase in 25 years. In rough numbers, that means that each of the richest 1% of filers in 1981 paid a little over $100,000 in 2005 dollars, while in 2005 each filer on average paid over $288,000. And remember thats inflation-adjusted dollars.
This astonishing statistic is explained by a simple fact. As a result of reducing taxes on the rich, the rich got much richer so much so that they wound up paying nearly four times as much total tax (and nearly three times as much tax per rich person) as when taxes were higher.
This also reveals the truth behind the increased income inequality that liberals love to cite as their chief evidence against supply-side economics. In fact, as Laffer explains in Part I of the Onslaught from the Left series, the poor have gotten richer just not as quickly as the rich have. The increasingly unequal distribution of income during the era of supply-side economics has resulted from the poor increasing their income at a rate that has not kept pace with the phenomenal gains in income the rich have experienced not from the poor getting poorer. He goes on to show that in fact, lower taxes rates have led both to higher income among the bottom 50 percent of income earners and lower total taxes paid by that group.
Most important of all, of course, is the fact that when the rich get richer, they invest more money in the economy, thereby stimulating economic growth. Democrats generally cant stomach the rich getting richer, even when it means everyone is better off. But youd think they would at least propose tax policy that increases government revenue. Alas, they so want to punish the rich that they are even willing to lower government revenue in the process.
According to the Minnesota Business Partnership's 2007 Tax Incidence Study, Minnesota must attract 449 new households earning $53,000 to $67,000 a year to replace the taxes paid by one household in the top 1%."
The highest ever Federal Tax receipts were in 2007, under the G.W. Bush tax rates.
When the dems try rebutting by asking “Then why are we in the mess we’re in?”
Tell them “SPENDING!!!!!”
Accompanied by a disastrous policy of lending to unqualified borrowers.
A policy Bush tried to overturn several times in his first term!
TARP, the bailouts of SELECT banks and businesses, QE1 and QE2 have only made matters worse.
Obamacare and a failed energy policy make it clear that Americans must throw out the anti-American in the White House, and once again DECLARE OUR INDEPENDENCE!
I’m posting here so I can find these stats easily.
The far left fringe doesn’t care about tax revenue, it’s all about punishing those who produce -
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent . . . But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
GIBSON: And George Bush has taken it down to 15 percent.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.
And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair . . .
Reform of the tax laws is necessary. What must be stopped is the concept that taxes exist in order to effectuate some policy OTHER than the raising of revenue to pay for the necessary functions of government. Taxes are not to punish the rich, prevent the purchase of arms and ammunition etc. etc. etc. Taxes are imposed solely to raise revenue and even that purpose can be onerous to the middle class.
This reminds me of a rancher’s saying: You can shear a sheep every year, but you can skin it only once.
I’m sure Pelosi will be exempt from any tax increase. You just have to know the right folks.
Too big to fail.
Too rich to tax.
My favorite is too poor to tax.
The poor are inadequately taxed.
“Soaking” of course being a euphemism for outright theft.
D’Rats-—the great Dividers through their leftist class warfare playbook dribble. A far cry from Reagans quote, “A rising tide floats all boats”. No matter how many times its been proven that raising taxes is a Loser the moron, lunatic Dems keep returning to it ad nauseum.
In the 70’s I reard Paul Harvey say that if you taxed all income over $50,000 at 100 percent it would run the gov’t but a few days.
When was it decided that a tax rate was appropriate, rather than a tax $ amount, as an arbiter of “fairness”?
Don’t forget the stats (also posted sometime on NR) that show the government has NEVER been able to tax so much as 22% of GDP, no matter what the tax rates have been. IIRC, federal revenue was just above 21% for one economic quarter in WWII. It’s ridiculous to ever have a tax rate over 20%.
Besides, why would we want the government to suck up that much of the economy?
Tax them till they quite producing
Tax them until they start hiding their profits in safe havens.
Tax them until they move to where they are appreciated.
Tax them until the government collapses and John Galt, Hank Rearden et al can once again start producing without political leaches claiming their profits.
:’) Thanks Clintonfatigued.
Serious war time and being able to fund the troops and munitions is the only good reason for such a thing.
“You can shear a sheep every year, but you can skin it only once”
Brilliant!! That’s a keeper.