The Washington Post‘s Ezra Klein has found another masochistic rich liberal, investment manager David Levine, who says he would be much happier if only the government could please force him to pay more taxes. The new twist in Levine’s confession is that he believes people will work harder if you tax them more. “Think about it. You’re 40 years old, making a ton of money. But you’ve only been making it for a little while. And you’re looking at a life expectancy of 40 more years. Of course you’re going to work more years if taxes are higher! To make the money you need, you need to keep working.”
Ezra then produces two charts purporting to show that the U.S. economy has some of its best years of economic growth when the top marginal tax rate was 94 percent.
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A booming economy. High marginal tax rates. The revenue collected by the federal government must have been through the roof!
Actually, no, it wasn’t. As this chart from the Heritage Foundation shows, revenue collected from the federal income tax as a percentage of gross domestic product has been remarkably constant even as the top marginal tax rate has fluctuated:
There are a number of reasons why the U.S. was able to have such a high tax rate, such strong growth, but such little revenue collected. Ezra does mention the “substitution effect,” where higher tax rates drives people to work less since they keep so little of what they earn. And tax “evasion” is mentioned in passing too.
But there were also many perfectly legal ways for individuals to work as hard as they wanted and avoid paying punitive rates: loopholes. Bruce Bartlett recounts:
President Reagan’s answer to this problem was to eliminate loopholes and lower tax rates. It worked. After the 1986 Reagan tax cut, revenues went up.
Ezra and President Obama want to go in the opposite direction. They want higher rates (apparently as high as 70 percent!!!) and more loopholes.
