Just when you have them in the cross-hairs, the target moves!
everyone out there making more than $250,000 a year is going to end up
subsidizing the rest of us who make less. Let’s pretend we can squeeze enough
out of you folks to pay off our federal debt - just as it’s necessary to
believe in Peter Pan if you want to visit Neverland. Most people whose income
falls short of that plateau think this would be just dandy. Except some of us
think that soaking the rich will work about as well as appealing for voluntary
contributions to balance our nation’s budget.
This trade journalist began reporting on economics in 1977. Those were boom
times for the construction industry and our economy in general. Alas, trouble
was brewing. Double-digit inflation was raging and by the end of the decade
interest rates were in the high teens. The economy was in a tailspin and these
issues played a large role in the 1980 election of Ronald
Something else remains vivid in memory from that era. Federal tax policy was
skewed toward soaking the rich - even more so than today. When President Reagan
took office in 1981, the top marginal income tax rate was 70%. That’s right,
the IRS attempted to confiscate seven out of every 10 bucks earned once people
reached the highest income plateau.
Note that wordattempted.
A stark reality was that almost nobody paid that 70% rate. Instead, a huge
industry arose of lawyers and CPAs who themselves climbed to the highest income
bracket due to their skill in exploiting tax loopholes. Hotels everywhere were
booking tax shelter seminars. Many extremely wealthy individuals renounced
their American citizenship and took up residence in one of several little
Caribbean island tax havens that laid out the welcome mat for well-heeled
This points to a lesson that has never been grasped by the soak-the-rich crowd.
It’s an economic corollary to Newton’s Third Law of Motion - to every action there is an equal and opposite reaction. Try to
confiscate large portions of peoples’ money and you’ll find that just as you
get them in your cross hairs, they dodge away.
As sure as the sun rises in the east, as the bite increases on taxpayers
earning more than $250,000, they will seek out angles to retain their money.
They will finagle cash payments, increase 401(k) contributions, invest in
tax-free bonds, hang on to stocks rather than cash in capital gains, and plenty
will just plain cheat. Rest assured the underground economy will grow larger.
And/or, they will reduce the amount of income they earn. Many productive
citizens near the threshold will decide it’s not worth working as hard for
diminished returns, so two-income families will trade down to one breadwinner,
people will take more time off, opt for early retirement and so
The soak-the-richers will then scratch their heads wondering why tax revenues
are less than anticipated, and they will once again tap into the sacred creed
of their ideology - increase taxes some more. Only this time, tighten up all
Except the tax fanatics are always going to lose that battle. Here’s
Let’s give credit where it’s due: our federal government employs some very
smart people. Hundreds of these very smart people in the executive and
legislative branches put their talents to work crafting ingenious tax laws and
regulations that seem to cover every possible contingency. Then the statute
takes effect on the private sector.
There the law engages not hundreds, buthundreds of thousandsof equally smart lawyers and
accountants who will probe for loopholes. As soon as one discovers something
exploitable, that person will earn a lot of money spreading the word via
articles, books and seminars. Tax law writers are like a rural teacher’s
college trying to compete in football against the likes of USC and
Something else is worth recalling: the Reagan Administration slashed that top
tax rate from 70% to 28%, and it set the stage for a quarter-century of the
greatest prosperity in the history of mankind. The only balanced federal
budgets we’ve had in the last half-century occurred during the Clinton
Administration, driven not by high taxratesbut by windfall taxdollarsgenerated by that prosperity.
Supply side economics has always been treated with scorn by the soak-the-rich
crowd, who have never figured out how it works or acknowledged that it does.