Has very high taxation of high earners ever worked or been effective as an economic policy?
What do you mean by worked?
If the question is, are there countries with progressive tax rates that have less income and wealth inequality than other countries with less progressive tax rates, then yes, they've worked.
If the question is, are there countries that have successfully used progressive tax rates to decrease the taxation of the middle class, then no, they don't work. If you compare the United States, with a relatively low top rate to countries with higher top rates (including the US prior to 1980), the US gets more of its revenue from high income earners.
As an example, let's compare the US and Denmark. Denmark has a higher top marginal income tax rate and lower income inequality than the US.
Top marginal income tax rate (combined federal and local):
- US: 47.6% in California; 39.6% in states without an income tax (e.g. Washington).
- Denmark: 60.2%, starting around $55,000.
Income inequality (2012 Gini coefficient):
- US: 32nd highest at 46.1.
- Denmark: 140th at 29.1.
We can easily see that Denmark has much higher taxation on high earners and lower income inequality. But it also has much higher taxation on moderate earners. That 60.2% maximum rate kicks in around $55,000, not much above the median household income. So in Denmark, everyone with above average income pays the same tax rate.
In the US, the rate is lower and it applies to fewer families. Only those making more than $400,000 a year pay the top rate. And a far higher portion of the overall tax burden is paid by high earners. The top 1% of earners pay almost 40% of federal income taxes (from the Tax Foundation).
Denmark also has a 25% VAT (value-added tax). Compare that to a top sales tax of 9.75% in California (combined state and local). And the sales tax is an exclusive tax, so it would be only 9% on an inclusive basis (matching the 25% VAT). Meanwhile, the VAT is an inclusive tax, so it would be 33% on an exclusive basis (matching the 9.75% sales tax). And VAT aren't progressive at all.
People who make even the lowest salaries in Denmark have to pay VAT. Let's assume that they consume their entire income, with no savings. So even if they pay no income tax, they still pay 25% tax.
In the US, someone making up to $19,725 only pays a 10% federal income tax (and that only on $9,325 of that income). So if we assume a 9% California sales tax on an inclusive basis (to match the 25% VAT), that still leaves 6% to pay local income taxes. That would be a rather high rate. We'll assume that the Earned Income Tax Credit (EITC) offsets any Social Security taxes.
Overall, the tax exclusion saves about $1000 in the US compared to Denmark. So the working poor pay less tax in the US (and also receive fewer benefits).
So overall, Denmark has higher but less progressive taxes than the United States. They would charge high earners at a high rate, but they have very few high earners to charge. So they charge lower earners at a higher rate than the US does. This is true even at the poorest levels, but is especially true between incomes of $55,000 (where the highest Danish rate starts) and $400,000 (above which the highest American rate starts).