“Most people earning that kind of money can pretty much itemize all their expenses and have large mortgages and pre-tax 401ks.”
Not even close. Pretty much anything after $109,000 gets only the mortgage deduction. I don’t know where the Hell people get this notion that “rich” people pay little in taxes. There simple are no deductions after about $109,000.
True, if you are filing as an individual earning a salary, but most people earning that kind of money don’t earn a paycheck. They are 1099 consultants or self employeed. They can absolutly itemize their expenses. I am not saying the rich pay little in taxes; I am saying using the IRS definition of income is not a good way of defining the top 1%.
“Rich” really should be defined by assets.
If most of your potential income comes from capital gains or business income, then you can maintain relatively little taxable income and just not realize the actual income from the appreciation of your assets. This is the Warren Buffet syndrome.
This is one reason why the argument that the rich have gotten richer since the Reagan tax cuts is (partly) bogus. Lower rates made people more willing to realize this income, so more of what they made from their assets became taxable. And of course it made the assets themselves more valuable, on paper anyway.
Raise marginal tax rates and less income will be realized and less real income will be taxable, and asset prices will fall.