Hoisted from the comments

In a discussion of raising marginal tax rates, reader DJ wrote:

Interestingly enough, raising taxes on the rich does not result in prosperity either, it only serves to drive the economic activity out of the country derived from the holdings of the rich. The 90% tax rate in the depression only served to drive milliona[i]res out of the country.

Note here, that on the basis of his comments, DJ knows what he's talking about and has a good grasp of the facts.

The fact that he made this comment is an indication of the truth of the old Mark Twain quote, "A lie can travel half way around the world while the truth is putting on its shoes."

DJ has assumed that self serving statements from people who don't want their taxes raised actually have a basis in reality.

The myth that rich people did, and will again, "go Gault," is just that, a myth.

First, and most importantly, the 90+% tax rate was not implemented until 1944-1945 (and then again in 1951-63, not times of slow GDP growth).

Second, there is no evidence that millionaire's fled the country during the depression. The case is generally made that the recession of 1937 was caused by this, but only by people like Amity Shlaes (who is not to be trusted, see below) in her execrable book The Forgotten Man.

They suggest that because Roosevelt pursued tax evaders, it triggered the recession of 1937, because they went "Gault" and withdrew their money from the economy and put it in their mattresses.

Of course, the fact that neither Keynes, who blamed the tightening of fiscal policy by the government (which did include a tax hike) nor Friedman who blamed the tightening of monetary policy by the Fed, viewed this argument with anything but scorn, and this is the alpha to omega of honest economic thought.

Additionally, in order for people to flee the US income tax (after the first $91,400) you have to renounce your citizenship, which also precludes the ability to make campaign donations, which makes the regulatory arbitrage that generates this income, particularly in finance, which is where most of the tax rates increase would fall.

Essentially, if they leave the country and renounce their citizenship, the government guaranteed infinite ATM that they have goes away, because the Congress will no longer feel compelled to do their bidding.

I would also note that while the top 1% of earners account for 23.5% of income (2007), they account for less than 20% of spending (2008, they do quintiles, so it's an approximation, and I don't want to tease it out any further), so a dollar going to a rich pig^™ is much less stimulative than a dollar going to a dollar going to someone in the bottom 4/5 of the population.

There is a legitimate question as to whether or not we should raise taxes on the rich today because we are still in a depressed economy, though I favor it.

That being said, many of our long-term structural problems come from the fact that income distribution is increasingly unequal, and the the use of high marginal tax rates is one of the best ways to change this.

I would also note that if the "geniuses" at Lehman, Bear Stearns, and Citi withhold their ideas for "financial innovation" as a result, we are all the better for that.

As to Amity Shlaes, who is typical of the people supporting the "going Gault" hypothesis, and arguably one of the most prominent proponents:

• She has no background in economics (degree in English)
• She is in idiot who lets her ideology dictate the facts (she was fired by the Financial Times for repeatedly submitting stories about the heroism and competence of Bush and His Evil Minions^™ during Katrina).
• In order for her to justify her conclusions about 1937, she states as fact things that are unequivocally false.