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I've seen this point before, but it's not an argument for keeping rates low. "If we raise rates, the rich will just find ways to avoid them!" People find new ways to try to murder and steal all the time; that doesn't mean we throw up our hands and make it legal to do so.

The solution is to raise rates and fix loopholes, difficult a political lift as that may be.

My primary point is that we can't look to the past and say "rates were super high before, and look how great we did". We need to realize those were nominal rates that no one ever really paid. It may make sense to raise rates on high-earners, but we can't justify it based on the past economic results during periods of high nominal rates.

That’s not the point being made at all (that we need to force people to pay the high rate). The point this commenter is making is that you cannot point to the nominal tax rate and use it as evidence that high tax rates don’t cause harm, because it is not the nominal tax rate that matters, it’s the effective rate.

Sure, but isn’t there something to the argument that we should fix those loopholes and go after offshore evaders first before we crank up rates? Seems that ensuring the existing tax code is tidy and evaders are held accountable should be done first before making changes with potentially dramatic macroeconomic effects.

Show me how high taxes in France have made them better off at the median. US wages are far higher at the median, US wage growth has been far higher for decades, US unemployment is routinely 1/2 their rate, US growth is routinely 3x-4x higher. They've seen nearly zero inflation adjusted growth for 20 years and have among the world's highest tax rates.

Their people are rioting week after week, because their system of high taxes has failed them, their middle class is being crushed anyway. What are they going to do, raise taxes further? The only thing left is to begin confiscation of wealth directly and then they're just the next Venezuela in waiting, accelerating their collapse.

I've seen zero evidence the US Government can be responsible with spending and allocate it to proper use as things are now. They've been wildly irresponsible for 40-50 years running, including in stealing trillions of dollars from Social Security over decades (and then lying about it) and on wasting trillions on unnecessary military spending. Why would I give them more money until they prove they can be good stewards with the $4.x trillion they get to spend now? Let's see them take the $750 billion in military spending down to $450 billion where it should be and redirect those resources to infrastructure et al.

> I've seen zero evidence the US Government can be responsible with spending and allocate it to proper use as things are now.

It's hard to argue one can get the same performance - on the same scale - as US government in projects it does.

How, for example, you measure overall lack of wars and general growth in prosperity, health etc.? What's the US part in that? Even if, say, Sweden manages lots of projects more efficiently per capita, how would you argue scaling that won't be worse than what US is doing?

It's a rather common opinion that governments are less efficient than private organizations. Still for some things we keep governments and keep trying to make them efficient, having headwinds which aren't typical in private world. Not sure if starting with "first reach efficiency..." won't get us to the same situation as US government is in right now - i.e. a prolonged shutdown.

I can't edit my post anymore, but I should apologize for implying that gnicholas made that argument. As others have pointed out, they were just making a point above effective rates versus nominal rates. My mistake.

If you actually succeed in doing that, those people will turn in their passports and go somewhere that doesn't.

This is a distortion of what actually happened. The reason why there was a massive expansion of benefits granted to top employees in the mid 20th Century is exactly because the 90% taxes on income over $100,000 (adjusting for inflation, roughly $1.6 million in today's money) -- and this was necessary because that $100,000 limit felt real to the employees.

This is when the era of travel on corporate expenses became lavish, because it was a tax-free way to offer an extra gift to top employees. If a company can not pay its top executives more than $100,000, then the company might as well put together a lavish bash in Las Vegas -- this can function both as a sales opportunity, but also a way to reward top employees, since the company can not really offer them more cash.

If you like, you can refer to the growth of benefits as a tax shelter, but that distorts the original meaning of the word.

The big era of tax shelters, in the regular sense, does not get going till the end of 1960s, and then goes wild in the 1970s, then comes to an end in the 1980s (with obvious exceptions such as "horse farms" which allow the rich to avoid paying real estate taxes, while also enjoying their horses).

But during the first 30 years of those high taxes, from the 1930s to the 1960s, those high nominal rates lead to high real tax rates. This is the main reason that income inequality shrank dramatically during this time. Read the vicious attacks that the wealthy expressed towards these high taxes and you realize that these high taxes were very real.

> If you like, you can refer to the growth of benefits as a tax shelter, but that distorts the original meaning of the word.

Just to be clear, I wasn't talking about employee benefits at all.

If I recall correctly, there were more deductions available to the middle class at that time as well. Credit card interest was tax deductible until the ‘86 tax reform that you mentioned.

This is a very common argument, but aren't the rich already doing as much as possible to avoid the 39.6% rate?

Yes, Defined Benefit Pension Plans, 401K profit sharing, etc. There are an enormous amount of vehicles to use to legally lower your effective tax rate for wealthy individuals - especially small business owners.

This is my complaint too. People rant about the rich “paying their fair share”, but the problem here isn’t the tax rate applied to the rich, it’s that they don’t pay anywhere near it.

> People rant about the rich “paying their fair share”, but the problem here isn’t the tax rate applied to the rich, it’s that they don’t pay anywhere near it.

Yes, but the rich nonetheless pay the lion's share of income taxes:

The share of income earned by the top 1 percent of taxpayers rose to 20.6 percent in 2014. Their share of federal individual income taxes also rose, to 39.5 percent.

from https://taxfoundation.org/summary-latest-federal-income-tax-...

And they receive the lion's share of benefits from getting privileged access to legislators, better policing, lighter sentencing in the rare case they are charged with an infraction. The poor basically get scraps, no legislative voice, higher risk of death by police, higher rate of incarceration, and basically all the worst parts of America. The rich are doing just fine, seeing as we're effectively in the second gilded age.

Nope, taxpayers do as much as is efficient. If a tax lawyer says "I can save you $50k in taxes by setting up a new corporate structure, but it will cost $25k to set up and another $10k per year to maintain", then the taxpayer probably won't do it.

But if rates go up, then it turns into saving $100k, but with the same costs of implementation and upkeep. Basically, as rates go up, it makes sense to do more tax planning.

Sure, but we're talking about a $10M bracket. They're already at enough savings that it's worth spending $1M on tax avoidance even with a 39.6% rate...

"Also, as a tax-lawyer-turned-startup-founder, if we saw rates like this again, I guarantee that the biggest beneficiaries would be the lawyers and accountants who would restructure contracts to avoid these taxes."

That makes sense, but I have to ask, how is that different than what we have now?

And, if that is true wouldn't it be a short term benefit for attorneys that would settle back to what's the current norm now after a few years?

Finally, doesn't that assume the changes in the tax code would provide a means to accomplish that?

The goal is to move more of the profits of and gains in productivity back to the working class and there no reason to change anything if that's not wired into the new laws.

> And, if that is true wouldn't it be a short term benefit for attorneys that would settle back to what's the current norm now after a few years?

It would lead to a higher steady-state amount of work because taxpayers would get more bang-for-buck from their tax planning dollar. See my other comment for an example of how an increase in the nominal rate leads to more tax planning activity.

The effective tax rate has been steady at 17 +/- 2% since World War II regardless of how the government changes the nominal rates. Totally agree that lawyers and accountants would ensure that this remains true. Good luck taxing rich people.