by lotharcable | 2025-05-08 15:52:31+00:00
In the USA since the end of WW2 the % of GDP collected by USA Federal government has been around 17-18%.

Since then we have had a top income tax rate range from 28% to 90%, but the actual amount of taxes collected is really not impacted by this.

Highest tax rate by year:

https://taxpolicycenter.org/statistics/historical-highest-ma...

Tax receipts as percentage of GDP:

https://fred.stlouisfed.org/series/FYFRGDA188S

There are lots of reasons for this. The main one, however, is that people react to different tax rates and change their behavior.

And very rich people have a huge amount of leeway. If you decide to tax a 1% at 99% they might just decide to simply stop earning altogether. They will continue to be rich for the rest of their lives and their children and their grand children.

I think a lot of people think you can just depend on people's blind greed so they keep on maximizing their earnings regardless of how much they actually earn. However this is not even how it works a little bit.

The economy can be seen as little more then essentially random giant feedback mechanism. Everything you do to it has a effect and it is impossible to predict it accurately. People's behavior changes, their choices change, their goals change, etc. etc. based on conditions and incentives forced on them by the government.

This behavior is described in the so-called "Laffer Curve"... which is not a mathmatical formula for maximizing revenue, it is just a way to illustrate the sort of behavior you deal with when raising taxes.

Nowadays most governments are going to have the _effective_ tax rates maxed out. Governments hire plenty of accountants and economists that have clear understanding on how all of this works.

Which means, very generally, that massively raising tax rates will yield short term gains until the economy adjusts... then chances are reasonably high they will actually collect LESS in taxes then otherwise would be.

Which means that if the government really wants to raise money they need to go after people with little flexibility in their behavior... which is going to be poor and middle class people who live mostly paycheck to paycheck.

No matter how much you tax the middle class or poor they have to work. They don't have choice. Which means that you can actually increase taxes collected by targeting those groups.

They can't target these people directly with taxes because we live mostly in at least semi-functioning democracies and any politician voting on doubling or tripling taxes on those people are not gong to be politicians for very long.

So they resort to inflationary policies like deficit spending, manipulating interest rates, and "money printing".

These policies are actually a sort of "shadow tax" or "indirect taxation". They extract wealth out of the economy for the government to use, which then increases the costs for poor and middle class people.

The whole thing is very messy, but since most people don't really understand how inflation works or where it comes from it is a effective way to short circuit any political accountability.

All of this means that if you want to raise government income without massive negative effects your only choice is to grow the economy.