Soak-the-Rich Taxes: Fail! - Robert P. Murphy - Mises Daily

Soak-the-Rich Taxes: Fail! - Robert P. Murphy - Mises Daily: "But with a progressive (or graduated) tax code, the revenues flowing into state coffers increase more than proportionally. This is because the average taxpayer is earning a higher income and is paying a higher proportion of it in taxes.

On the other hand, revenues tend to crash much harder during recessions in those states that rely on steeply graduated income taxes. Not only are taxpayers in the state earning a lower income, but many of them slip into lower brackets and hence pay a lower percentage as well.

Democratic governments are notoriously short-term in their planning. During the boom times, when state coffers are overflowing with revenues, the state legislatures ramp up spending programs. When the bottom falls out during the next slump, the legislatures are caught in a difficult position. It is no coincidence that California and New York — states with very progressive income-tax codes — also have recurring difficulties in balancing their budgets."

"Back when the federal income tax was instituted in 1913, Americans were also promised that it would forevermore remain a slight irritant to the super wealthy. Initially it imposed a mere 1 percent tax on those making under $20,000, and a top rate of 7 percent on those making more than $500,000 — a fantastic sum in those days.

Yet in 1917, a mere four years later, the bottom rate had doubled from 1 percent to 2 percent. Someone in the $500,000 bracket now faced a tax rate of 54 percent. And the highest bracket, applicable to incomes exceeding $2 million, faced a tax rate of 67 percent. (The history of federal income-tax rates is available here.) Needless to say, Americans would not have agreed to a federal income tax in 1913 had they realized what the politicians would do with it."