When taxes were raised in 1993, people in all income groups dodged or deferred taxes and flocked to incentives designed to soften the tax impact. The result was less revenue to government than the Clinton administration and Congressional Budget Office projected -- although people's reactions to higher taxes could have been anticipated.

• Following the 1993 rate hikes, the U. S. Treasury collected less than half the revenue gain projected from the increase.

• This occurred in part, according to tax experts, because high earners had the foresight to draw extra income and tax bonuses in 1992 in anticipation of the increase.

• Also, studies show that people sock money into their Individual Retirement Accounts when higher taxes loom, but save less when the deductibility of their contributions is reduced.

• Then those with potential capital gains sell stocks ahead of an anticipated rise in the capital gains rate, and defer sales when rates are high, and conversely, when the capital gains tax rate was cut in 1978, federal revenues from that source tripled by 1985.

Another way in which people respond to changes in the tax laws are the use of 401(k) plans which permit employees to commit part of their earnings -- which are then exempted from immediate taxes -- to retirement accounts.

• Since one of the major tax preferences under these plans is tax exempt municipal bonds, the number of taxpayers buying these bonds rises faster after tax increases take effect.

• When the 1991 tax increase took effect, the proportion of filers taking advantage of tax-exempt interest income jumped 7.9 percent.

• The increase after the 1993 tax hike was 8.4 percent, according to early data.

Finally, there are excise and sales taxes. People cross state lines to buy alcohol and tobacco when convenient, and tend to buy fewer luxury-taxed items when these taxes are high.

Source: Daniel J. Murphy, "Fending Off the Tax Man's Rite," Investor's Business Daily, July 9, 1996.