Courtesy of Dr. Paul Price at Beating Buffett
Comrade Obama’s now deferred tax rate increase on the enemy (America’s most productive citizens) will be a great source of debate in the next presidential campaign. ‘Tax Fairness’ resides only in the eye of the beholder.
The espoused reason for raising taxes on high earners is to collect more revenue to reduce budget deficits. Liberals who champion such policies ignore the entire history of past collection rates over decades of wildly varied top marginal income tax rates.
Here are charts showing the varying top marginal rates and the actual federal tax collections as a percentage of GDP…
Excepting the period prior to 1920, 1929 marked the lowest of the top-end rates at 24% while 1944-45 saw the highest confiscatory rate capped at 90% of ‘statutory net income’. You can imagine the huge disincentive anyone had to go to work with the prospect of keeping just ten cents on the dollar (less state and local taxes) for their extra efforts.
Did high marginal rates bring in more tax revenues as those who pushed these de-motivating ‘social justice’ enforcers theorize? No. Did lower marginal rates decrease the revenues as a percentage of GDP? No again. See the chart below to see how narrow a range federal tax collection has fallen into over the past seventy years.
The only constant that predictably increased nominal tax collections was a higher actual GDP. Growing the overall economy is the only chance America has to work its way out of our debt crisis.
The state of Maryland instituted a ‘millionaire tax’ in 2008. Since then, roughly one-third of the state’s millionaire households have disappeared from their tax rolls. Oregon’s state legislature tried a similar high-end tax grab in 2009 when they passed a new law subjecting joint filers with $250,000 – $500,000 incomes to a 10.8% tax rate. They added a top 11% state bracket for joint incomes above $500,000. They also applied punitive rates to businesses in January of 2010.
Because the tax law was changed in June, 2009 but was retroactive to January 1, 2009 it managed to snare some increased tax collections because it blindsided tax-planning experts who had no time to anticipate the changes. Oregon’s tax receipts of $180 million are expected to decrease to $130 million as the previous 38,000 households that fell into the highest brackets has dropped to about 28,000. This represents a combination of high earners leaving the state as well as the changing face of revenue recognition deferment by Oregonians smart enough to change their behavior when the tax laws changed.
Oregon’s Eugene Register-Guard newspaper reported that “income tax and other revenue collections began plunging so steeply [after the tax was raised] that any gains from the two measures seemed trivial.” The state’s Revenue Office has adjusted its tax collection projections for the first three years after implementation of the higher rates downward by about 33%.
Capital gains taxes, which come entirely at the discretion of the investor, have been especially hard hit. From $3.5 billion of reported net gains in 2009 it appears that only $2 billion of net gains will be taxed in 2010. Not surprisingly most of those ‘missing’ capital gains were deferred by those dastardly people who would have paid them if rates hadn’t been placed at such punitive levels.
Oregon’s unemployment rate is above the national average at 10.8%. The state’s high individual and business tax rates are certainly not an inducement to anybody with aspirations of making good money to move to, stay in or start a business within Oregon’s borders.
The recent census data showed Texas and Florida as big net population gainers. Both states impose much more attractive 0% income tax rates. Coincidence? I think not.
