How much can we tax the "rich"?

I have always been of the opinion that there is a limit to how much you can tax wealthy people. Somewhere on the tax rate scale people who earn significant income simply move income to places where they either are not taxed or taxed at a lower rate. Also wealthy people many times do not pay large monthly bills such as home loans and car payments which they have bought with cash and can find ways to live on less monthly income than non wealthy people. Understand the rich are not always the people who live in big homes and drive fancy cars. They are the neighbor next door that chooses to live modestly as they always did accumulating wealth.

There is a real disconnect in the media concerning the difference between "rich" and "wealth". I wonder every time I hear a news person in the media talk about "taxing the rich", are they referring to the income rich or the asset rich. Income rich people are making lots of money annually, but likely not people with lots of "wealth". A person who earns significant income annually is likely spending much of it, paying for a home, paying for cars, sending children to college, etc. Almost anyone who is working for a living is spending more money living and working than someone not working who has significant assets. Income rich I would opine refers to celebrities, sports stars, CEO's of large companies.

People with "wealth" certainly includes the Kennedys, Rochefellers, and other families who have lots of assets. However these people actually earn little taxable income, due to tax favored trusts and foundations. So even though these people have much more wealth than the income rich, they are not taxed as much as the person working to make a living and accumulate assets.

Now what happens when you raise tax rates? People who can move income to tax free municipal bonds, tax deferred master limited partnerships, move into dividend paying stocks in other countries which are taxed there and not in the USA, place assets in legal trusts, and like many movie stars set up tax favored foundations. People who make lots of working income can max out 401-k's, pay for expenses in pre-tax expenses, and many companies allow income earned now to be deferred until later in life. So when rates get high people with income move assets to places where taxes or low or zero.

These tax avoidance devices are not going away. Take municipal bonds for instance, if by some chance you could find a court to allow these to be taxed, how would cities be able to afford building water systems and roads without these bonds bought by many people other than the wealthy. We all save by cities being able to build infrastructure cheaper using muni bonds for debt. Master limited partnerships help make pipeline infrastructure cheaper , and we all know how important it is to be able to pipe gasoline and natural gas where we need to use it. Foundations and trusts and the donations they make allow for many charities to exist. There will never be a way where you can force another country to tax income made there to be paid to the higher taxed country.

When tax rates are high income rich and asset rich use these tax favored income vehicles much more. The assets they move to lower taxed choices take investments away from stocks and bonds of companies that are growing and adding jobs for everyone. That money is not being used to open new businesses that add jobs. The wealthy can delay taking capital gains so they can avoid paying those taxes until they desire. Delaying capital gains also keeps assets from companies who are growing and improving our economy. So when we raise tax rates to a point where rich and wealthy people move assets we all lose. But just where is that point and what is that rate?

That brings me to the point of this posting. I found a great graph earlier this year online that really shows where that point occurs.
The graph shows that no matter what the federal tax rate is the limit for achieved taxation is about 20% of GDP receipts that can get taxed before people begin using tax avoidance and tax favored option The federal government at one time raised rates to 90% and still got no more than 20% of anyone's income.

Twenty percent federal taxation by my figures equals right at $250k income for a married couple, the amount President Obama has appointed as where you become "rich, taking in considered deductions. So we are right at the ideal tax rate currently to achieve the maximum federal tax haul. Seems any increase in current rates would actually net nothing in added federal revenue. So despite what politicians tell us any increase in tax rates on the wealthy now would not increase tax revenue but only cause the wealthy to use tax avoidance vehicles. All this talk of being "fair" about tax rates would only do harm to our society, but forcing people with higher incomes to put their income and assets in places where it does the least good for society in general.