Historically, federal taxes have averaged about 18.5 percent of the gross domestic product.

That percentage sank to 16.3 percent of the G.D.P. in 2004, largely because of Mr. Bush’s tax cuts, but it edged up to 18.8 percent last year as a result of booming corporate profits and investment income.
- NY Times

That means the rich paid more tax and nobody raised taxes. Is that possible?

I call this the "Reagan's soak the rich tax scheme."

If you really want to soak the wealthy, just let them do what they do - make money. Then, smack them for the pre-determined low percentage they expect to pay. If you smack a rich guy for 15% of his long-term capital gains, he'll just make the money and pay you. If you let him take the hit when he loses money, then stick him with a fluctuating tax from 50-75% of his real wealth earnings, he'll decide it's smarter to hide his money in a box and wait til the environment allows him to prosper. It's common sense. We go shopping when things are on sale. Rich folks make more money when the tax costs are lower, and predictable.

Reagan didn't cut government income or spending. The trillions in debt came from outrageous spending, not a deep cut in income. If I tell an employee he can have 10% of everything I sell and because of that lower amount I don't begrudge the advertising I buy, he may make more money than if he was paid 15%. How? It's because I behave differently when the number feels more encroaching. He didn't pull any money out of pocket to buy the advertising, just like the federal government doesn't pay for business to invest in their own enterprises. It's the punitive nature of high-percentage taxation that causes business investors to hold back. They are less willing to take risk, which translates into fewer jobs and less total income for them and us.

The problem is populists hate rich people. It's a simple case of cutting off one's nose to spite one's face. Rich folks create wealth; poor people don't. Poor people, for whatever reason, are unable to create wealth even for themselves. They may work hard, they may be valuable and intrinsically better people than the rich. But, in the end our roadways, schools, and even our luxuries are largely supplied by industrious rich people. If you take away their financial incentive through higher taxes, they will respond by making less money. And, that translates into less tax revenue. And, that means less free stuff for those of us that don't make a lot of money.

If you want to really soak the rich, you'll have to let them make money. And unfortunately, for those that most concern themselves with what the rich keep and not what they give, they'll have to make a lot of money in order that the government may take and redistribute a lot of money to those less fortunate.

It's an easy choice: soak the rich or punish the rich. But, you can't do both.

Posted in culture | economy | public law jasonn's blog