Analogously, it would be a very bad idea to impose a 80% marginal tax rate on top earners to fund the Against Malaria Foundation, because most of them would work less and there would be huge deadweight loss.
The tax rate was 90 percent on them for a long time, in the US—what’s your basis for that claim? It sounds like a cached belief.
One popular tax dodge that made the effective tax rate much lower. Also, until the 80′s (Reagan?) you could get lots of stuff paid for by the company without paying tax on it; company car, housing allowance, other stuff. I’m not an expert but the “real” tax rates were that high only for some.
Huh, interesting claim in the link. I Googled, though, and I couldn’t find any source for this besides the comments on Y Combinator. Can you find another source (preferably one that explains how big an effect this had in aggregate)?
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
The tax rate was 90 percent on them for a long time, in the US—what’s your basis for that claim? It sounds like a cached belief.
One popular tax dodge that made the effective tax rate much lower. Also, until the 80′s (Reagan?) you could get lots of stuff paid for by the company without paying tax on it; company car, housing allowance, other stuff. I’m not an expert but the “real” tax rates were that high only for some.
Huh, interesting claim in the link. I Googled, though, and I couldn’t find any source for this besides the comments on Y Combinator. Can you find another source (preferably one that explains how big an effect this had in aggregate)?
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