Ok then: Lets say we have company A, company B and company C and they are the only 3 pencil makers in the world and there are no substitutes for pencils, everybody needs one. However all pencils are close to identical.

Company A and Company B exist in Taxmax land and Company C exists in Taxless land.

The price of pencils are $1 each.

Each company can produce enough pencils to satisfy the world demand.

If tax is doubled on company profit in Taxmax land so the profit on the pencils are reduced to almost nothing.

Company A and Company B cannot increase the price their charge for the pencils because Company C would take 100% of the worlds market for pencils if they do. So the price of the pencils remain static even though the profits have been all but completely taken by Taxmax lands government. 

Now assuming that the government of Taxmax land introduced an embargo on pencil importation to protect Company A and Company B. The price of the pencils would increase but it would not increase as much as to completely eradicate the effects of the taxation because each company would price their pencils to maximise their profits. However without collusion they could not extract the maximum profit possible because they are acting in accordance with their own best interests assuming the other player did the same. This means that they would incur at least some of the additional taxation without passing all of it along to the consumer at the end.

" Abstract:     
The move to a pay-as-you-earn income tax system in Iceland in 1987-1988 made income earned in 1987 tax-free. Using a sample of 9,274 individuals for the years 1986, 1987 and 1988, we calculate the labor-supply response of this change and find that total labor supply rose by 6.7% in 1987 over the average of 1986 and 1988 when we correct for entry in 1988. This consists of an 8.6% increase in weeks supplied by those already in the labor market in 1986 and a 1.9% decline due to entry/exit. The elasticity of weeks worked to the rise in after-tax wages was 0.41 for men and 0.11 for women. While the participation rate of women increased somewhat in our sample, participation by men fell."

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=268859

Theres a good summary.

GDP did not go through the roof though, but it did increase as expected.

I would never propose that those in the top 1% be taxed near 100% of their incomes, nor would I say it would be effective. The point of governence to me is for them to take as little money as possible to ensure an efficient economic outcome without taking so much as to make the markets inefficient. I think where we differ is that I believe that health and education are areas which are worthwhile to improving the economic efficiency of a country whereas you're more individualistic.

Your missing the point of this thread.

I am not arguing politics, or if healthcare should or should not be around, or if it's the governments job to run it.

I am stating that Government expects to generate revenue for a program buy manipulating the tax system in a way that's proven to not generate more revenue.

Forget about what the program is or isn't, and if the rich should pay more taxes or less. The "deficit neutral" philosophy of this administration is banking on money that will not be there. 

That's a problem, for any program. Especially when we are in a debt based recession.

So you set up an example that never would happen? Funny. In your "world", what would happen, is Company A and B would move operations to wherever company C is, so they could make the most profit. Thus all the money earned by the employees now moves to Taxless land, and GDP goes down in Taxmax land.

What I was saying are two things:

1. If the government has all the data in the world about overall tax takes at different levels of tax for the wealthy which shows that its not worth the effort then they will try to find some other means to raise tax revenue. Governments may appear to be stupid, but you're saying that their efforts are obvious to be futile. They have no incentive to do something to raise revenue which they have data which shows will not work. However if they have reason to believe it will increase revenue then its quite likely that it will. If you can believe that individuals act as agents in their own best interests in the economy, then its not a difficult stretch to believe that governments will also act in their own best interests.

2. The only way to completely shrug off the effects of an increase in taxation is if you have a lot of market power. But because the economy is closer to being a competitive market rather than an Oligopoly/Monopoly over the many industries the companies involved do not usually have significant market power. This means they cannot dictate to their consumers any price increases without collusion on a massive scale. There are tax loopholes, strategies to minimise taxation etc but they only go so far. Furtheremore the desire to enact these strategies likely diminishes with increasing prosperity. If you have $3,000,000 and I took away a third of that you would feel it a lot more than if you had 10* the quantity of money. Every dollar beyond a certain point has diminishing value to an individual.

1. You don't get votes by taxing the middle class. Also, a lot of people in Washington who are for this program are trying to get it passed by taxing the middle class, because they know that's the only way to generate the revenue. Obama will veto any bill that taxes the middle class. That's what he said in the press conference. Also, a lot of people in Washington think it's better to just get something passed, and worry about paying for it later. I am sure that's Obama's plan.

2. Your arguing theory against historical fact. I am not saying why it works the way it works, I am just saying it does. We have collected 19.5% of GDP for the last 60 years, regardless of tax bracket for the rich. Why are you arguing that it will have an effect, when it has been proven not to?

Crack down on under the table work. California is like half black market.

Even if you assume TheRealMafoo is wrong and the companies don't move to a different country, the taxed companies do not just reduce the wages and benefits of their employees over time (typically by offering lower raises for several years), and the taxed companies do not reduce resarch and development or marketing (all of which are very likely to happen) the company in taxless land is still at an advantage ... I assume you meant to suggest that Taxman land introduced tariffs rather than an embargo:

If there is a tariff in place and no one responds in a similar (or disproportionate) fashion, in taxman land when someone buys a product from Company A or B they pay the price of the product plus the added cost of the tax, and if they buy a product from company C they pay price of the product plus the added cost of the tariff (which you already said was lower than the cost of the tax); the over-all result is that company C has an advantage inside of taxman land that is roughly equal to the difference between the cost of the tax and the cost of the tariff. Outside of taxman land, when someone buys a product from Company A or B they pay the price of the product plus the added cost of the tax, and if they buy a product from company C they pay price of the product; the over-all result is that company C has an advantage outside of taxman land that is roughly equal to the cost of the tax.

If there is a tariff in place and countries responds in a similar fashion, in taxman land nothing has changed and company C still has an advantage that is roughly equal to the difference between the tax and the tariff. Outside of taxman land, when someone buys a product from Company A or B they pay the price of the product plus the added cost of the tax and the added cost of the tariff, and if they buy a product from company C they pay price of the product; the over-all result is that company C has an advantage outside of taxman land that is roughly equal to the cost of the tax plus the cost of the tariff.

There really isn't any way you can fudge the numbers in a scenerio which results in the a company being unable to pass an increase in tax onto its customers or employees (reducing their income and resulting in lower GDP growth) or being at a competitive disadvantage to foreign companies (resulting in lower GDP growth, and potentially shocks to GDP due to capital flight).

Actually the cost of taxation really depends on how flexible the consumers/producers are. When demand is inelastic the taxation falls most heavily on the demand side, but when demand is more elastic (ignoring supply for simplicity) the tax falls more heavily on the suppliers.

Cigarettes -> Consumers pay.
Canola oil -> Producers pay (as people can get Olive, Bran, Lard etc)

@Mafoo

1. You don't get campaign contributions taxing the rich.

2. Because like I said wayyyy earlier. The proportion of income in that group has increased substantially at the same time as the taxation level has dropped. You've proved correlation and not causation.

And when the tax falls heavily on the supply side, producers cut back on their costs by laying people off, reducing employees income and benefits, and by buying less goods and services from their suppliers which (effectively) has them passing the cost of the tax onto others.