What History can teach us. High taxes are bad.

I used to watch the Biography Channel a lot. It was there that I noticed a trends among the wealthy elites in the post World War II years. They didn't like paying taxes but they could do something about it.

At the end of the Second World War, the United States found itself as the sole remaining industrial giant of the non-communist world. Europe and Japan had been bombed so heavily that industrial capacity, along with the human resources necessary for production, had been set back a half century or more. England was tottering on the brink of a fiscal abyss from the money spent on the war and re-asserting itself amongst its colonies.

The top marginal tax rate in the U.S. was 90 %. Imagine that - 90 cents over every dollar earned over a certain threshold was taken from the private sector. People who were self-employed wee able tp take compensation in forms that were less heavily taxed, such as stocks and real estate to allow for the much lower capital gains tax rates. Investments were made in the exploration and production of petroleum because of the generous tax benefits - remember the oil depletion allowance?

Large companies, particularly those in the government regulated industries, were glad to exchange the right to price their own products and services for government control as long as government sent those prices high enough to allow a certain percentage of profit. This allowed the utility companies to sell the bonds necessary to finance their tremendous infrastructure improvements.

Since the tax code was structured to reward the private sector during the building of an industrial economy, not all people who were high wage earners were able to equally benefit by exploiting the tax code. These people were looking at paying 90% of the last dollar they earned in each reporting year. Some of these people would cross the 90% threshold in the second quarter. At which point, they were taking home 10% of their pay for more than half a year.

Case in point, Ernie Kovacs. A great, and sometimes brilliant, comedian, comic actor and producer, Ernie ran into problems with the IRS. Seems that Ernie wouldn't, or couldn't, see why he should pay 90% taxes on every dollar he made in December and didn't want to take the advice of working for six months and vacationing for six months to reduce his income tax burden. When he died behind the wheel of a Chevrolet Corvair, he owed the IRS a lot of money. His widow, Edie Adams, was a proud woman who worked for years to pay off his debt while refusing help offered to her by Frank Sinatra and Jack Lemmon to host a benefit event to raise the money.

Case in point, actor Sterling Hayden had to leave the country because of his tax problems. Living and working in Europe, he lost a lot of opportunities for work in the U.S. because the few times he did work in America, his salary would be seized by the IRS.

Case in point, singer/actor/dancer Gene Kelly left the United States for Europe for "business reasons". I guess his taxes got too high. Since he moved back to the U.S. after two years, it might be presumed that it was also for "business reasons" - such as being unable to find enough work in Europe and having to move back to be close to the factory.

In 1960, John Kennedy was elected President. His father, Joe Kennedy, had made a fortune on Wall Street in the 1920s. He was fortunate to have sold all of his holdings prior to the crash and was able to live off of his investments. President Kennedy realized that the American economy need investments and that lowering the tax rates would spur an economic boom - he was right.

Once the tax rates were lowered, the Americans who had moved overseas for "business reasons" moved back home. Other countries would continue to maintain their confiscatory tax rates and as a result, lost many of their high earners who had the ability to work anywhere in the world. How many performers and musicians left England and moved to America after the lowering of the U.S. marginal tax rates? Quite a few.

What does this history teach us about the present and the future? People who support higher taxes do not like to pay higher taxes. If they wave the ability to make money in a country with a lower tax rate, then they move. Do not be surprised to see the most Bush-hating and Obama-loving celebrities begin moving out of the country for "business reasons" in an attempt to lower their taxes. Do not be surprised to hear these same celebrities give interviews to the foreign press in which they decry the wickedness of the conservatives for wanting to keep more of their own money - interviews made just before these same celebrities have meeting to shelter their income and lower their taxes.

I am fortunate in that I live in a state that does not have a state or local income tax. A sunbelt state, we get a lot of people who are fleeing the high taxes of the rust belt states. We are glad they choose to live here. However, I wish they would remember why they left their last home and move before they start advocating we change our government to be more like the financially oppressive governments from which they fled.