No evidence that shows higher top marginal taxes increase revenue.

December 7, 2012
By

As the below graphic quickly illustrates there is no evidence that supports that higher taxes on the rich would return more revenue for the government and in turn reduce the deficits.  In 1954 we had a top marginal tax of 91% and collected about $2,600 per person.  In 1984 the top tax rate was 50% and we collected $5,700 per person.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As if Obama and democrats care about revenue.  As Obama displayed in 2008,  it is not about revenue.

Candidate Obama was asked by Charlie Gibson from ABC News why he supported an increase in the capital gains tax rate, given an historical record that repeatedly shows the government losing revenue as a result.

Replied Obama, “Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”

And so, above all else, it’s “fairness” that matters, defined as confiscating more money from “the rich,” even if means bigger deficits, less revenue for government programs, less investment, less job creation, and longer periods of joblessness for the unemployed. --

So if this view of fairness rather than actually decreasing the deficit is your main concern, then none of the following evidence will matter to you.

If you where thinking that the higher revenue achieved in 1984 under a considerably lower tax rate is just a fluke occurrence, not so.  As the below graph illustrates, if you plot the tax rates and the revenue collected per person for each year,  clear pattern emerges.  Lower marginal tax rates, tend to return higher revenue.

 

 

 

An argument can be made that over time the productivity of people increases, and so the average income per person increases, leading to an increase in the average revenue collected per person.  Though this might be true, if you believe that tax rates affect revenue, then the large fluctuations in tax rates should result in some visible fluctuations in revenue.  These fluctuations are however, no where to be seen.  The following graph illustrates that even if we account for increases in productivity by calculating the revenue as a percentage of GDP, we see no relevant changes in revenue collections even though the top marginal tax rates goes through large swings.

 

 

 

So what can account for the revenue the Federal government collects via taxes being so consistent.  The reason for the consistency is people’s behavior.  As tax rates change, so does people’s behavior.  This consistency is further illustrated in the below graph.  Most people like to talk about the tax rates for certain periods of time, but what they never mention is the  effective tax rates during that time that actually get paid.   According to Internal Revenue Service data, from 1966 to 1970 the effective tax rate of a tax payer in the top 1% was 30.85%.  Throughout the time period in question, the effective tax rate of the top 1% never exceeded 35%.  So considering that the current effective tax rate of the top 1% is about 33%, the actual tax rate that the rich pay, has been the same level all along. 

Tags: , , , , , , , , ,

Leave a Reply