The New York Times came out with an article last weekend claiming how much good raising taxes on the country’s wealthiest could do:
[W]hat could a tax-the-rich plan actually achieve? As it turns out, quite a lot… the government could raise large amounts of revenue exclusively from this small group, while still allowing them to take home a majority of their income.
The article then proceeds to detail the “whopping” hundreds of billions of dollars that could be generated were the government to raise taxes.
But this soak-the-rich argument ignores history. As Professor Antony Davies explains in the video below, over the last half-century tax revenue has held steady at around 18 percent of GDP no matter where tax rates were set. In other words, higher tax rates, like the Times article calls for, have had little-to-no historical success in raising tax revenue.
Based on this history, Davies argues that the best way to raise tax revenue is not to raise tax rates but to grow the size of the economy as a whole — 18 percent of a big pie is a lot more revenue than 18 percent of a small pie. The recipe for a bigger pie? To use the Times’ phraseology: “allowing” people to keep more of what they earn.