Wednesday, February 22, 2012

Tax Dodge

Everyone ought to know that higher tax rates do not necessarily produce higher tax revenues.

Sometimes they do; many times they don’t.

“Tax the rich” has become a mantra for the Demagogue Party. Even if the numbers do not add up many Americans listen to the spiel and blithely assume that higher tax rates will produce more tax revenues.

Apparently, the British government thought so too. The new government, a conservative/liberal mix, decided to raise taxes on the richest Brits to 50%.

Now the first indications have arrived at the tax collector and they are sobering indeed. For January the very rich Brits who pay estimated taxes paid less in taxes than they had when the tax rate was lower. 

Last year in January the government had received 10.85 billion pounds. This year it received roughly 10.35 billion pounds.

Uh oh.

Apparently, the very rich, what we call the 1%, had been maneuvering to pay less taxes. Whoever would have imagined such a thing? Worse yet, indications are that some of them are preparing to move their businesses abroad.

The next time a politician tells you that he wants to raise taxes to reduce the deficit you will know that higher tax rates are just as likely to yield lower tax revenues, an expanded deficit, and slower economic growth. 


Anonymous said...

The simple tax equation that democrats, who continuously champion rasing taxes, seem to not know is: Revenue = Base x Rate. Rate and base are both variables and enjoy an inverse relationship.

Raise the rate and the base decreases, and usually more than the rate -> total revenue decreases. The reverse is also true.

Why this fundamental relationship is willfully ignored by the left defies a logical explanation.

Stuart Schneiderman said...

I agree... but could it be that the phrase gets repeated so often that people have been brainwashed into believing that higher tax rates will produce more revenue... to the point that they are impervious to reason?