Why High Taxes Will Never Soak Rich | Daniel J. Mitchell | Cato Institute: Commentary

Why High Taxes Will Never Soak Rich | Daniel J. Mitchell | Cato Institute: Commentary: "trying to get more money from upper-income taxpayers is like playing whack-a-mole. So long as tax rates are high, rich people will figure out ways to protect their income.

It doesn’t take a tax genius; any rich person can make a phone call or hit a few computer keys and shift his or her investments to tax-free municipal bonds. It’s not good for the economy when capital gets diverted to help finance the excess spending of Detroit or California, but it’s an effective way of stiff-arming the IRS.

Or the rich can play the green-energy scam, getting all sorts of credits to offset their tax liabilities. That’s one way General Electric made lots of money and kept it all for shareholders."

"When the government taxes income, it raises the price of work compared to leisure. And because the tax code penalizes capital gains with higher rates, it also raises the price of saving and investment compared to consumption.

Yet work, production, saving and investment are how we generate national income, so it doesn’t make sense to discourage taxable income with higher tax rates."

"In 1980, when the top tax rate was 70 percent, rich people (those with incomes of more than $200,000) reported about $36 billion of income; the IRS collected about $19 billion of that amount. So what happened when President Ronald Reagan lowered the top tax rate to 28 percent by 1988? Did revenue fall proportionately, to about $8 billion?

Folks on the left thought that would happen, complaining that Reagan’s “tax cuts for the rich” would starve the government of revenue and give upper-income taxpayers a free ride.

But if we look at the 1988 IRS data, rich people paid more than $99 billion to Uncle Sam. That is, because rich taxpayers were willing to earn and report much more income, the government collected five times as much revenue with a lower rate."