Soaking the Rich

The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.  -- Thomas Jefferson, 1816

Insanity, they say, is doing the same thing over and over again, and expecting a different result. This is why voting republican is insane. It is also why voting democrat is insane. Neither party has our best interests at heart (or even in mind) when they talk about limited government. When they talk limited government they are referring to limiting the other party from doing what they want to do. Meanwhile, all current politicians believe they have a better idea how to spend our money.  But do they have the first clue on how to raise it? Consider this chart:

Most politicians talk about raising and lowering the marginal tax rates like it is the magic dial that determines how much revenue is received. Many of us simply take it on faith that this is true. However, the dirty little secret is that no matter what the tax rates are, the revenue remains a straight percentage of GNP. How can this be?

At high marginal tax rates, the wealth is moved to outside the country, or is never created in the first place. It's a law of supply and demand. When you tax something, you get less of it. When people are taxed at a high rate, their capital is quickly invested where the tax rates are lower. People with capital do not free it up when rates are confiscatory. They wait. Patiently, quietly, and without reservation. This, in turn, causes GNP to fall.

The main idea should be to raise revenue. Since revenue (as a percent of GNP) is independent of tax rate, burdening the rich is an illogical and ineffective remedy  The only thing that will raise revenue is higher GNP. That requires an economy that achieves an increasing productivity jolt. Less government would work. Fewer regulations would work. Ways of unlocking higher productivity would work. Soaking the rich? That won't work.