In April 1971, Keith Richards loaded his family and his Bentley onto a cross-Channel ferry and drove south until he hit the Mediterranean. He rented a 19th-century villa called Nellcôte on a hillside above Villefranche-sur-Mer, and converted the basement into a recording studio.
Over the following year the rest of the Rolling Stones rotated through the house and nearby properties to record the double album that became Exile on Main St., while staying deliberately out of reach of the British tax authorities.
The top marginal income tax rate in Britain at the time was 75%, and a surcharge on the highest earners pushed the effective rate on the wealthiest past 90%.
Three years later, under Denis Healey’s 1974 budget, the top rate on earned income would climb to 83% and the rate on investment income would reach 98%.
Britain would spend the rest of the decade watching capital flee and begging the IMF for emergency loans.
David Bowie, Rod Stewart, Michael Caine, Sean Connery, and a long line of less famous wealthy Britons eventually ran the same arithmetic as the Stones and reached a similar conclusion. Capital left the country in every form it could fit into, including bonds, businesses, luxury cars, and rock stars.
But politicians never learn.
Senator Cory Booker of New Jersey has backed legislation that would push the top federal income-tax rate to 43%.
Senator Chris Van Hollen of Maryland is pushing a version that lands at 49%.
Both men describe it, as they always do, as wealthy Americans finally paying their “fair share.”
What exact percent is their fair share? Are we to believe they will be satisfied at 43% or 49%?
As always, that phrase is deliberately left undefined.
Never-mind that the top 1% of filers already paid 40.4% of all federal income taxes in 2022 while the bottom 50% paid roughly 3%.
They are also conveniently ignorant of the fact that raising the top marginal rate doesn’t actually raise revenue at all.
Since the end of the Second World War, U.S. federal tax revenue has averaged around 17% to 18% of GDP, dipping toward 15% in deep recessions and climbing near 20% in booms. The swings track the business cycle, not tax policy.
The top marginal rate, over that same stretch, has been all over the map: 91% under Eisenhower, 28% under Reagan by 1988, 39.6% under Clinton, 37% today. Yet regardless of whether tax rates were 91% or 37%, the IRS always collects around 17% of GDP.
The conclusion is obvious: if the government wants to collect more tax revenue, they should focus on setting the right conditions for an economic boom. In short, make the pie bigger for EVERYONE, and hence the government’s slice will grow as well.
Making the pie bigger isn’t that hard, either. America’s private economy is legendary. All Congress has to do is get out of the way. Attempt to run a balanced budget. Restore credibility. Make it easier for businesses and individuals to be productive. REMOVE idiotic laws instead of creating new ones.
But they’re not interested in any of those things.
Congress has documented evidence of hundreds of billions of dollars in fraud. Yet they do nothing. They have also pledged to do nothing about Social Security— which is set to run out of money in six years.
The regulatory code in the Land of the Free already runs over 188,000 pages. Yet they expand it every session.
This is the opposite of what they should be doing. And instead of figuring out how to live within their means, they just demand more resources… even though it never works.
Britain tried its 98% tax experiment in the 1970s and spent a decade regretting it.
Ironically the current Labour government has forgotten that painful lesson; they recently abolished the 110-year-old “non-dom” regime, and more than 10,000 millionaires have already left the country.
In the United States, Elizabeth Warren’s Ultra-Millionaire Tax proposal does not just impose a wealth tax. It bundles her wealth tax with an additional 40% exit tax on anyone who renounces US citizenship.
You do not create a 40% tollbooth at the border unless you fully expect people to try to walk through it.
These are not serious ideas to grow an economy. Rather, they are insidious policies designed to trap people in a system which steals their prosperity.
That is why a Plan B makes so much sense.
