We tried soaking the rich in the past, but the resulting revenue loss was more than we possibly could afford today. Individual income tax rates of 20–91 percent under Eisenhower brought in only 7.7 percent of GDP. Lower tax rates of 14–70 percent from 1964 to 1981, thanks to President Kennedy, brought in 8 percent of GDP. A top tax of 28 percent from 1988 to 1990 brought in 8.1 percent of GDP. By contrast, raising the capital gains tax to 28 percent from 1987 to 1996 thwarted stock sales and clearly cost the Treasury a bundle. What was fairer about high tax rates that were not paid?
The trouble with depending on so few people for so much government is that it doesn’t work when the party stops. We’re running short of rich people to tax.
From 2007 to 2009, the IRS reports that the number of incomes above $1 million (including many businesses) fell by nearly 40 percent. As a result, incomes above $1 million accounted for “only” 20.5 percent of individual income tax receipts in 2009, down from 27.8 percent in 2007.
A shortage of prosperity always creates a shortage of prosperous taxpayers. That is not a problem that can be fixed by taxing the few surviving millionaires into oblivion.