Why raising taxes on the rich will actually result in a decrease in tax revenue (and potentially higher unemployment)

Remember, the Congressional Budget Office has to assume that people will not change behavior as a result of tax changes (i.e., fire or hire employees), when people obviously will. My guess is that raising the taxes will result in LOWER tax revenue, not higher (seeing as when the rates went into effect in 2001, it resulted in HIGHER tax revenue).

My reasoning:
A small business owner makes $300,000 a year. Of this, $200,000 was in cash and $100,00 was capital gains, of which $50,000 was short-term and $50,000 in long-term . He wants to keep $90,000 of cash for himself and use the rest to pay for employees. Let’s assume he pays each employee $30,000 a year, including all benefits and taxes

2010 tax rates:
Cash: $200,000 * 33% = $66,000
Short-Term Gains: $50,000 * 33% = $16,500
Long-Term Gains: $50,000 * 15% = $7,500
Keep: $90,000
Employees Hired: 4
Remaining: $0

Total Tax Revenue: $90,000 + $17,000 ($4,500 per employee) = $116,000

2011 tax rates:
Cash: $200,000 * 36% = $72,000
Short-Term Gains: $50,000 * 36% = $18,000
Long-Term Gains: $50,000 * 20% = $10,000
Keep: $90,000
Employees Hired: 3
Remaining: $20,000 (which means he increases his take home pay to $110,000 and can then blame it on Obama when he fires that 4th employee). Because he fired that employee, the government will now make less in taxes than they got.

Total Tax Revenue: $100,000 + $13,500 ($4,500 per employee) = $113,500. The government just LOST $2,500 in revenue even though the rich guy was taxed an extra $10,000

or Employees Hired: 4 at a reduced total package of $27,500. This might mean he doesn’t pay for their health insurance, or reduces their pay outright.

Total Tax Revenue: $100,000 + $12,375 ($4,125 per employee) = $112,375. The government now lost even more ($3,625) in tax revenue, even though the rich guy was taxed an extra $10,000

This is simplistic example, but it works. Basically, you won’t be taking the money from the rich. They’ll figure out a way to keep the same amount of take-home pay. Based on the liberal assumption that rich people are just greedy (the reasoning for increasing their tax rate is to make it more ‘fair’), then you also can assume that they’d rather just fire an employee or cut pay based on an increase in their taxes so as not result in a lower take home pay.

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