Taxing the Rich and Hauser’s Law

We hear a lot in the news of various ways to increase tax revenues that the government sorely needs.  Most of the heated discussions are about how much to tax the rich since most of us are not rich.  “Don’t tax you, don’t tax me.  Tax that man behind the tree.”

But even if we took every penny over $1 million from every rich person, that would still be only a drop in the bucket of our country’s financial problems.  There are just not as many rich people as we think.

And it was tried before.  During the 1950s and 1960s the marginal (highest) tax bracket was an astounding 90%.  In those days, make over $1 million and you got to keep only ten cents of every dollar, but in practice, nobody paid that tax.  Anyone faced with many hundreds of thousands in taxes hired a lawyer for a hundred thousand or so to figure out how not to pay it.   That high tax bracket only produced prosperous tax lawyers, deferred compensation and revocable trusts.  Today, only the terminally naïve think all of the loopholes can be closed in a tax policy filling 70,000 pages, each page written by lobbyist-coddled politicians

A Wall Street maxim is “High taxes don’t get paid.”  They only raise the incentives to game the system that the rich can easily afford to do.

A few years ago, an economist named Hauser found that from 1950 (after the disruptive effects of World War II) to 2009, tax revenues remained almost exactly at 19% of GDP, never going above 20%, despite widely varying tax policies.

The inconvenient truth is that the only way to constantly bring more money into our government is to increase the GDP.  That is very difficult to do, but there are no easy fixes, and most political attempts are actually detrimental to the GDP.

About Roger Walck

My reasons for writing this blog are spelled out in the posting of 10/1/2012, Montaigne's Essays. They are probably not what you think.
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