The yield of a tax at 0% is 0. The yield of tax at 100% is also close to zero, as nobody will do anything to earn money that will be taxed at 100% (i.e. ensure all earnings dodge that tax). Therefore the set of policies that give maximum tax yield do not have a tax rate of 100%, and increasing tax rates beyond that reduce tax yield.
(Not to mention that some taxes are easier to evade than others, and it’s easier for some people (e.g. self-employed workers) to evade taxes than for others (e.g. public servants).)
Taxes will be dodged regardless of the rate as long as paying lawyers and accountants is cheaper than paying those taxes. Simplifying the tax code would do a lot to prevent this deadweight loss
And they still dodge taxes now, even when the rates have been slashed into oblivion. If anything they only seem more determined to do it.
Mindkiller Alert!
The yield of a tax at 0% is 0. The yield of tax at 100% is also close to zero, as nobody will do anything to earn money that will be taxed at 100% (i.e. ensure all earnings dodge that tax). Therefore the set of policies that give maximum tax yield do not have a tax rate of 100%, and increasing tax rates beyond that reduce tax yield.
This analysis is subject to some caveats, and where the optimal rate is is a very complicated and politically charged question, of course, and this is already completely off topic.
(Not to mention that some taxes are easier to evade than others, and it’s easier for some people (e.g. self-employed workers) to evade taxes than for others (e.g. public servants).)
Taxes will be dodged regardless of the rate as long as paying lawyers and accountants is cheaper than paying those taxes. Simplifying the tax code would do a lot to prevent this deadweight loss