Free Markets, Free People

Why “tax the rich” rarely lives up to expectations

Bruce Bartlett takes a look at Britain’s experience and a study that documents it and concludes the same is probably true for here:

The study concluded that the behavioral effect of raising the top rate was much more powerful than anticipated. Two factors in particular had a large effect on revenues.

There was a timing effect. People moved income that they anticipated receiving forward so it would be taxed before the new higher rate took effect. They also postponed the receipt of income into the future in anticipation of a change in the tax rate after the election of a new government.

Also, because the British top rate had increased above that in all other major countries except Japan, many Britons relocated in reaction. For example, 1,379 people in high-income occupations moved to Switzerland in 2010, a 29 percent increase over the previous year.

The point, of course, is those who fall in the bracket in which the tax is increased are going to do what is necessary to minimize the impact of that tax.

Human nature 101.  Consequently, the revenue projections are almost always high – and wrong.

Additionally, the Democrats like to imply that taxing the rich is a panacea for the spending problems we have.  In the name of “fairness” they imply that if the rich would only pay their “fair share” well everything would be hunky dory.  Of course we know the real problem is spending not revenue.  But regardless, the real effect of the “Buffet Rule” for instance, is negligible:

But a March 20 analysis from Congress’s Joint Committee on Taxation estimates that implementation of the so-called Buffett rule, which would require those making $1 million or more a year to pay an effective federal income tax rate of at least 30 percent, would raise only $46.7 billion over the next 10 years. That’s a drop in the bucket compared with the $41.2 trillion in federal revenues expected to be collected under current law.

Note that last number and remember, this is a government which is claiming that it can’t get by on $41.2 TRILLION over 10 years.

Where again is the problem?


Twitter: @McQandO

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16 Responses to Why “tax the rich” rarely lives up to expectations

  • Why…in the wide, wide, wonderful world of sports…it this BEYOND people to grasp? Erp…???

    • @Ragspierre Any level of taxation on the “rich” that might even come close to making a dent in the federal deficit would force most of those “rich” in the “wide, wide, wonderful world of sports” to play outside the US. Does America really want to “outsource” all of it’s pro-sports ?

  • The objective is to tax everyone down to a level where they CANNOT afford to move. Then the conniving rich sob’s won’t be able to escape paying their fair and just share, which shall be determined by wise compassionate progressives (you know, the sort of people who were wishing Dick Cheney well with his heart transplant and were wondering if Bristol Palin’s future children will have the same health issues ‘her’ son Trig has….)

    • @looker “…tax everyone down to a level where they CANNOT afford to move.” Huh! Ain’t gonna EVER happen. Not with our border security. Leaving is CHEAP…!!!

      • @Ragspierre

        Haven’t you heard? You can’t take it with you when you go. Then there is extradition.

      • @Ragspierre Hey, if you leave that expensive house and car behind as you slip across the Rio Grande to sunny Mexico your friends in the Federal Government will thank you for abandoning your possessions so they can wisely auction them off at pennies on the dollar. And as Tim says, there’s extradition. I understand they’re working on tying your passport to your tax liabilities.

        • @looker Actually, guys, a LOT of what Obama has done in office was intended to close the doors to expat wealth. The rest of the world resents it, too.

        • @Ragspierre Well, he’s helped drive the value of the dollar to parity. As I read elsewhere, there’s hardly any other decent place to go for the average person any more where it doesn’t cost about the same as staying here. Mission accomplished.

  • Seriously, perhaps they could consider allowing more drilling on Federal leases so the revenue from the leases actually increases instead of Obama’s brilliant plan that works so well to reduce it. Is oil lease revenue covered in oil or something so that it’s not desirable?

  • “… Democrats like to imply that taxing the rich is a panacea” But the problem isn’t just the anticipation by the “rich” to the tax changes, with the current levels of the annual deficit, there simply aren’t enough “rich” to close the gap .. not even by half … and it really doesn’t matter what the level of taxing the “rich” might be.

  • If only you dense righties could be as spiritual as I am, you would see that it’s a simple situation. Wealth gives people the power to force others to do their bidding. It’s just awful, the way rich people and powerful corporations can get people to do whatever they want. Only spiritual people like me, who don’t really care about money, are qualified to tell others what to do. 
    That’s why government is wonderful, even though it also forces others to do things. Yes, when government forces people to do things via the force of law, it’s just so, so much better than when rich people and corporations force people to do things by… um… propaganda and unscrupulous marketing, yes, that’s it. Especially unscrupulous marketing, where people are drawn by hypnosis to enter stores they should not go in and buy things they really don’t need. And take on horrible jobs for rich people that exploit them while they’re cleaning rich people’s pools and stuff, or forcing them to run their pizza businesses in unfair conditions where it makes total sense to steal pizzas from those nasty rich people. Which isn’t the least bit unethical or immoral. I decree it.
    Can’t you thick, nasty, inbred righties see that Europe is the model we should be striving for? And shut up about Greece, just shut up about it. And Italy, which is just a wonderful place where I take my students, and it sure doesn’t look to me like it’s going down the tubes no matter what your charts and graphs say. No, you should absolutely concentrate on Germany, which is just a perfect society. I know, because I’m a specialist in this area and wrote a book about them which wasn’t either published by a vanity press that specializes in scamming social scientists. The Germans just have it all figured out, and it’s not either true that they’re just a few years further out from the same problems. Not true at all, and if it ever looks like it might be true, I’ll be back with a complete explanation of either how it isn’t true, or maybe that it is and I predicted it all along. Depending on how my mind rearranges things to accommodate new facts.
    Which isn’t lack of principles or a sign of mental sickness or anything. It’s just pragmatism and flexibility.  Really, you righties are just hopeless at crafting a persuasive narrative on this. Which is all that counts. So again, stop posting those charts and graphs. They don’t mean anything. Instead, we must all sit down and talk things out and come to an agreement about what to do. Which, of course, means treating me as an equal. And in the end, because we spiritual leftists with advanced degrees are the only ones qualified to know what’s really going on, it means pretty much letting we wise, pragmatic, moderate leftists get most of what we want because we’re so unselfish and stuff, and in exchange, we’ll trim around the edges and do a few things a bit slower to give you twitchy righties time to re-adjust to the new realities of whatever new, wonderful government programs we find necessary to implement our agreement. It’s best for everyone if we do that. 
    Don’t you agree? Won’t you stop insulting me and engage me as an equal and talk about it back and forth a thousand times with me swatting away every argument you make like I’m squashing a mosquito? Which I totally don’t do just to try and bolster my own self-worth after finding out in middle age that I’m stuck in a teaching position at a third rate moose college where we don’t even have a PhD program. Nope, I’m spiritual and completely happy here. I do it to indoctrinate, uh, I mean teach the next generation the wonders of wise pragmatic leftism and how this whole freedom and responsibility and letting rich people keep their money stuff is just hogwash.

  • ” Also, because the British top rate had increased above that in all other major countries except Japan, many Britons relocated in reaction.” Check where the richest European lefties are tax registered. Damn sure most of them don’t choose their home countries! Money talks, money walks and it seems to be only mooseheads who believe the hype.