The Wall Street Journal

Do Taxes on the Rich Raise More Revenue?
The Wall Street Journal

Great Britain’s recent experience may be instructive. The U.K. has imposed a new tax rate of 50% for those making £150,000 a year (or about U.S. $236,000). There is a fierce battle between British Chancellor George Osborne, who wants to scrap the tax, and many Liberal Democrats, who want to preserve it.

The Chancellor has asked for a study to find out how much revenue the tax has raised, though hard numbers won’t be available until next year. It was expected to raise £2.7 billion a year.

That hasn’t stopped people from guessing. A report from Britain’s Institute for Fiscal Studies said the tax is costing the treasury £500 million a year, instead of earning billions. The reason: High earners are simply finding ways to avoid the tax.

The IFS, an independent think-tank that focuses on tax policy, said top earners are hiding income or moving their earnings offshore.

Of course, this is the argument that Arthur Laffer, Alan Reynolds and others have made for years. If you tax the rich too much, they say, the rich will just find loopholes. Tax them less, and they pay more.