Sorry, Joe. Raising Tax Rates Will Not Generate More Revenue

Despite all the rhetoric from Democrats about raising tax rates to pay for this and that, it's just that. Rhetoric. Revenues are unaffected by changes in marginal rates for a very simple reason. People change their behavior when rates change. When rates fall, it doesn't pay you as much to try to avoid taxes. When rates increase, it does. 

Soak the Rich. Lower Marginal Tax Rates

The slogan Make The Rich (or the Tippy Top earners, to quote the au currant Alexandria Ocasio-Cortez) pay their Fair Share is repeated over and over again. But if that were your objective,  historical data (I know, not as persuasive as Feelings) would suggest that you do just the opposite of  what the Democrats want to do -- i.e. raise marginal rates of taxation. Would they really be happier going back to 1960 when the top 0.5% paid far less of the income taxes collected?

Tax Rates Matter to Scientists

A recent paper by Ufuk Akcigit and Salome Baslandze examined the effect of tax rates on the mobility of "superstar scientists" -- the top 1% of inventors with the most valuable patents -- found that countries enjoyed a "26% increase in foreign superstar inventors for each 10 % decrease in top marginal tax rates."

What this means is that top performers (in this particular case, scientists who can do their work in lots of places) tend to move from locations that tax their earnings heavily to places that tax them lightly. This is the same basic economic reason that people are moving out of  high tax states like California and New York to low tax states like Florida and Texas.

Sometimes the empirical evidence of basic economic principles is complicated, but the principles are rather simple -- and predictable.  If you want top talent to stay in your country, don't drive them away with high taxes.

A Refresher on Marginal Tax Rates and Revenue

I'm pretty sure Bernie Sanders and Hillary Clinton were alive during the 1980s, so this shouldn't be necessary. But just as a refresher to them (and to those who weren't around then), let's review. In 1980, the top marginal tax rate was 70%. A few years later, Congress reduced the top rate to 28%. The chart below shows what happened to Federal Income Tax revenue from those in the top tax brackets. These aren't opinions; they're hard facts.

Now Bernie and Hillary are stumping to raise rates back to the high levels of 1980. To what end? To reduce the amount of tax the government collects? To reduce the number of people reporting high incomes? To prove, once again, that the Laffer Curve is quite real?