KK,
"Nobody ever paid the top marginal rate, ever................"
Wonder why? Care to explain.

I am more focused on capital gains than on top rates, but, again, I eagerly await you explaination of why no one paid the top rate. Was it because no one made enough or because they hid their money well enough that they never paid it. In my opinion it is very clear why the rich were making more, they were reporting it....
Here is a very basic example for you. Million dollar Hotel owned free and clear, fully deducted. Client makes about 12% return. He decides he would like to retire and buy a RV and vacation home in Arizona and invest the rest in low risk bonds. Today's tax code means he pays 15% capital gain after adjustments. Taken together will selling costs and the adjusted tax lets say he makes $700,000. He can then spend $150,000 on a very nice RV, $200,000 on a small home and reinvest the remaining $350,000 at 4% and have an extra $1166.67 cents a month.
If the tax rate goes up to the 33% rate, he ends up with around $180,000 less overall, so his monthly income falls by over half and he has less to fall back on in case of an emergency.
Instead he can decide to take a 40% loan on the million dollars at 8%. This gives him enough money to buy what he wants and costs him about
$50,000. This compares to the $330,000 at the 33% rate. Now, lets take the hotel. It was returning him 12%, or $120,000 a year. Take the tax rate of 33% and you see he was getting about $80,400 income off the hotel. The interest on his $480,000 loan at the high rate of 8% costs him $32,000 in interest. This leaves him at an income of $48,400 after taxes. This compares to the $14,000 of income if he were to sell. This means in less then 2 years he recoups his $50,000 loan costs. Ecomomically he is much smarter to take a loan and wait it out. The deciding costs will be his health and his need to get out of a higher risk investment.
If he waits, it means that the goverment loses the immediate extra tax revenue and the real estate market loses any fees and expenses associated with the sell. In addition, the person who would buy the hotel now has no incentive to move his money, reducing in another loss of taxes and real estate fees. Take it a step further, and the costs of Interest goes up as there is less money to invest in the low risk investment, meaning the gov't needs to pay more to borrow.
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