"Exploding" Termite Species Discovered

You're confusing tax rates with tax receipts. People didn't actually pay those higher rates. The high marginal rate was really nothing more than a subsidy for cities and counties. If you had money to invest you put it in double-tax-free muni bonds so you didn't have to pay any taxes on it. That was the real reason tax receipts went up when the tax rates were lowered - people moved their money out of munis because you could make more money even after taxes.

Not only that, but there were all sorts of ways to shelter your money from taxes that have since been eliminated. Everybody who made any kind of money had controlling interest in an money losing oil well or chinchilla farm or some other BS business. They wrote off the family car and half the house. Also, it was a hell of a lot easier to do cash business. Currency reporting requirements didn't happen until 1985, so a lot of people were completely off the IRS's radar.

In short, those high tax rates didn't hurt the economy because nobody paid them. The Economist had an article about this a few years back (behind a pay wall, unfortunately). It turns out wealthy people all over the world pay at most about 25% tax on their income, even in places with very high marginal rates like Japan and Sweden. As tax rates go higher they change their behavior. They take fewer risks and spend more time dealing with taxes and less time trying to make money. Worst case they move their money out of the country and invest it where tax rates are lower.

Look at corporate taxes. The US now has the highest corporate tax rates in the world. And yet, corporations pay almost nothing in taxes, because they've adjusted their operations to account for the tax code.

Source: http://rss.slashdot.org/~r/Slashdot/slashdotScience/~3/ByLmhJhwl2k/exploding-termite-species-discovered

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