Raising tax rates on high income earners is the key to the Obama way, both during the campaign and in his latest budget and tax proposals. Taxing the wealthy, or rather, taxing those making over $250k a year, is the gospel according to Obama.

Obama is raising taxes on people making over $250k by over $1 trillion (yes, with a “t”) over ten years.

Those with the power to tax never learn from history. I’ve written about the “revolt of the kulaks” phenomenon in which the producers of society would rather not produce than be subjected to confiscatory taxation. A related phenomenon is tax avoidance, in which people structure their lives so as so avoid creating taxable income (for example, purchasing municipal bonds rather than corporate bonds).

Whether it is a revolt of the kulaks, or mere tax avoidance, there is economic distortion from high rates of taxation.

The British are seeing this effect in their current budget, as wealthy Brits engage in tax avoidance (structuring their financial lives so as to legally avoid taxes) in anticipation of a rise from a 40% to a 50% rate:

High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday.

Lord Myners, the City Minister, said that the Treasury had “significantly reduced” its estimate of the revenue to be earned from the historic change.

He said that he believed that the new top rate, due to come into force this April, would still generate extra income from the wealthiest 2 per cent of the national workforce. But he cast doubt on whether the Treasury would pocket the £1.13 billion it has earmarked for 2010, and the £2.5 billion it hopes to raise in 2011. “We still believe it will be beneficial,” he said.

Lord Myners told peers that “behavioural consequences of the new higher rate of taxation” — shorthand for tax avoidance — had forced the Treasury to lower its expectations.

Guaranteed future headline: “Obama administration surprised at lower than expected revenues from taxes on the wealthy.”

They never learn, do they?

Related Posts:
All. Fall. Down.
The Revolt of the Kulaks Has Begun
The “Richest 5%” Are The New Kulaks

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