More Taxes=More Revenue, Right?

Wrong. However those on the left, particularly President Obama often use rhetoric such as, "the rich need to pay their fair share," and continually cites the example of Warren Buffett as an individual who actually wants to be taxed more and believes the wealthy are not taxed enough. Mr. Obama even went as far to claim that Ronald Reagan himself was the originator of the "Buffett-Rule" and should so aptly be named the "Reagan-Rule." This is just an attempt to trick Americans into thinking that current conservatives are right-wing radicals, as if to say that not even Ronald Reagan, arguably the most cherished conservative of the 20th century, is too moderate for current-day republicans. Contrary to any left-wing hooplah, this is simply not true. Mr. Reagan wanted to make the tax code more fair by lowering taxes across the board, not by making the rich pay more. It started in 1981, when he cut the capital gains tax rate from 25 percent to 20 percent, and wanted to further reduce it to 17.5 percent in his 1985 proposal, but conservatives in congress agreed that the only way to lower the income tax rate, they would have to negotiate to raise the capital gains tax rate.


Onto the original question. Now, I think it's obvious (at least to those of us who can do simple math), that raising the taxes of millionaires does not justify for more government spending, nor can raising the taxes of the millionaires keep our runaway spending even close to afloat. That point aside, we can at least all agree that increasing taxes will increase revenue for our benevolent government, right? Wrong, wrong, wrong. The wealthy have worked hard for their money and know how to divert capital to other areas, including taking advantage of subsidies or using tax havens. General Electric for example took advantage of green-energy subsidies to hold on to shareholders and escape excessive taxation. Economist Dan Mitchell, a man I frequently cite states:

In 1980, when the top tax rate was 70 percent, rich people (those with incomes of more than $200,000) reported about $36 billion of income; the IRS collected about $19 billion of that amount. So what happened when President Ronald Reagan lowered the top tax rate to 28 percent by 1988? Did revenue fall proportionately, to about $8 billion?

Folks on the left thought that would happen, complaining that Reagan’s “tax cuts for the rich” would starve the government of revenue and give upper-income taxpayers a free ride. But if we look at the 1988 IRS data, rich people paid more than $99 billion to Uncle Sam. That is, because rich taxpayers were willing to earn and report much more income, the government collected five times as much revenue with a lower rate.

Yet some believe that we should punish businesses for taking capital and jobs overseas, and that leaving is un-American, but moving assets in a way that makes sense for the owner is a basic freedom that shall not be infringed. If the government wants to keep jobs and wealth here, a flat-tax rate with a simple tax-code, free of subsidies and deductions is the most effective way to do so.