Efforts to collect more taxes fail because people adjust their
behavior accordingly. Amidst all the ‘fiscal cliff’ talk of
raising tax rates, few dare to ask: have tax revenues topped
out? How could tax revenues decline as rates go up? Easy: people
modify their behavior in response to whatever incentives and
disincentives are present. Make mortgage interest deductible and
people will rack up huge mortgages. Reduce the yield on savings
to near-zero (thank you, Federal Reserve) and people will save
less. Raise tax rates and people will lower their income or move
to low-tax locales. As the saying has it, “Money goes where it
is treated well.” Supporters of higher rates tout studies that
find upper-income taxpayers shrug off higher rates, staying put
in high-tax states: Do High Taxes Chase Out The Rich? and
Superrich stay put in high-tax states like California. On the
other side of the ledger is this study from Britain: Two-thirds
of millionaires left Britain to avoid 50% tax rate. Which view
is correct? Both, as