Friday, December 7, 2012

The Reality of Tax Rates and Actual Revenue

A great new find this week, eEconomics!  No that isn't a typo, it is the title for David Angelo's YouTube channel.  "Regular economics with a modern digital edge."

In his third show here he points out that 1959's 90% tax bracket brought in less than the 2007 bracket of 35% by 1.2.6% of GDP.

Anyone who digs into this more than 30 seconds will find that the income tax rates people commonly talk about don't even begin to factor in on billionaires.  A lot is made of Warren Buffet paying so little, and recently Mitt Romney as well, they don't "earn" money - instead they get "capital gains."  D'oh!  Simply raising the tax bracket to 90% encourages more people who have money to restructure their "work" so they don't pay more money out.

Louis Basenese shows how this went over in England recently in Another Tax Myth Bites the Dust.

On April 6, 2010, the top income tax rate in the U.K. jumped from 40% to 50%. The result? The number of people declaring incomes of more than one million pounds plummeted from 16,000 to 6,000, according to The Telegraph.
Fast-forward to 2012, and U.K. Chancellor, George Osborne, announced that the top rate would be reduced to 45% in April 2013.
Surprise, surprise! “Since the announcement, the number of people declaring annual incomes of more than one million pounds has risen to 10,000,” The Telegraph adds.

And let's finish with Veronique De Rugy's chart showing the last four decades of tax revenue being flat regardless of the TMR being near 50%, 30% or somewhere in between.

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