Why raising taxes on the wealthy doesn’t increase revenue

There will always be people who are envious of those who have more than they do.  Some people, such as the president, believe taxes ought to be raised on the wealthy even though he knows it has a negative effect on the tax revenues to the government.  As we speak, the amount of government debt is absolutely staggering.  Unfortunately, some suggest we continue to raise taxes on the wealthy in an effort to recover more revenue to stop the fiscal bleeding.  The consequences of a tax policy such as this can be seen in real-time in france:

(France24.com) — A flood of top-end properties are hitting the market as businessmen seek to leave France before stiff tax hikes hit, real estate agents and financial advisors say.

“It’s nearly a general panic. Some 400 to 500 residences worth more than one million euros ($1.3 million) have come onto the Paris market,” said managers at Daniel Feau, a real-estate broker that specialises in high-end property.

[…]

While the Socialists’ plan to raise the tax rate to 75 percent on income above 1.0 million euros per year has generated the most headlines, a sharp increase in taxes on capital gains from the sales of stock and company stakes is pushing most people to leave, according Didier Bugeon, head of the wealth manager Equance.

[…]

French officials are looking for ways to reduce the country’s excessive public deficit and debt, and Hollande won election on a platform of making the wealthy carry more of the load.

Bugeon said he was seeing start-up entrepreneurs looking to move their headquarters out of France and taking their families with them.

With the Internet “it is now possible to work in any corner of the world and come and spend one week a month in France,” said Thibault de Saint Vincent, president of Barnes France, the principal competitor to Daniel Feau.

“Those who are going abroad fear a future tax on capital movements,” he added.

[…]

No one is certain if the rush to the exit will continue, but Daniel Feau noted: “Nobody until now believed that the capital gains on shares would be taxed so high.”

And it is not only the Paris region, more offers are coming onto the market in other areas of the country as well, the realtors added.

As a result, in the previous two to three months the price of large Paris apartments had slid by five percent.

People will only tolerate so much before they are unwilling to remain in an environment which becomes detrimental to their finances.  Eventually the wealthy will go into survival mode and abandon their homeland for one where they can enjoy their successes.  The wealthy are not like the middle or low-income families.  They have the means to relocate.

Punitive taxes on the wealthy only work of they wealthy remain to be taxed.  If you cross their threshold, they and their taxable monies leave with them.  If you thought 10-15% isn’t contributing enough, 0% is even worse.

Comments

  1. Sound the alarms! The fantastically wealthy are going to all vacate the US of A if they have to pay a full 30% of their capital gains to the IRS!!!
    But seriously folks, taxing the rich is not going to make the rich flee to far flung countries that don’t tax wealth- unless the tax rate makes it impossible to hold on to the bulk of their wealth.
    What is the lesson of all this? Don’t tax people at 75%. The lesson is certainly not “we better cut taxes for the uber wealthy or else they will leave because they can move anywhere they want.”
    I’ve said it before, I’ll say it again- we ought to have a flat 25% tax on every dollar earned above the basic cost of living- 35% flat capital gains tax- minimal deductions- no estate tax. It is so simple it pains me to understand why we make this so complicated.

    • I don’t think they’ll leave because of near 100% increase (from 15 to 30%), but it inhibits moving investments. When it costs twice as much to sell a stock, or house, people wont do it as often, which means they pay less taxes over the long-term.

      I’d be all for a flat tax, though I’d put it somewhere between 16-19% with fewer deductions (the max deductions could not bring you down below 10-12%) Also, a minimum of $120 per year for non-working Americans. I think everyone should pay taxes. I certainly wouldn’t raise the capital gains tax, I’d lower it to about 10% flat, no deductions. Remember cap gains applies to retirement funds, savings account interest, profit’s from home sales, and many other wealth producing activities that normal and lower-income people do.

  2. It’s been a while since I heard the number, so I could be off some. But I believe that if we taxed the top 1% at 100% it wouldn’t bring in enough revenue to pay for a month of government expenditures or so. So taking it all won’t make a significant difference, but raising the rate from 36 to 39% will solve all of our problems. Sounds good ot me.

  3. Sounds like 98 days.

  4. Craig, you and I agree, to a point on the tax issue.

    I believe the average tax revenue the Federal government should take in is about 18% total. This can be achieved with about a 20% tax rate across the board, allowing minimal deductions down to a minimum tax rate of about 16%. The policymakers would likely have to adjust the 20% and 16% a little to achieve an average of 18%. As for capital gains taxes, it should be decidedly lower, perhaps as low as 50% of the main tax rate, with no deductions applied toward capital gains income. The main reason it should be lower, is because the bulk of the money – the initial investment – has already been taxed once. As for non-working Americans, the only taxes they should be required to pay is in sales taxes.

    This plan is best achieved through a phased-in approach, such that the higher tax brackets move to the new minimum tax requirements quicker than the lower tax brackets, perhaps over 5-10 years for all brackets to make the shift. The gradual shift is to allow the economy to adjust specifically for the lower class, who will all of a sudden lose their tax credits allowing them to receive a $5k check for a refund of $2k in initial withheld taxes (yes, this currently happens).

    The adjustment to be made by the economy is for everyone to adjust their spending habits such that they can afford the new taxes, and for the market to adjust their paychecks to the point that they can actually afford the cost of living.

    In no way does this plan ever guarantee a job for everyone, nor should it. There simply are too many people on the planet for the amount of available jobs. There’s no way around this unfortunate truth, and there WILL be millions, or billions of people who will die in poverty as a result of the system balancing itself out.

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