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I think some people are missing the point of Ace's graph. It isn't that people do illegal things when rates are high and stop cheating when they come down (though I'm sure there is some amount of that, but nothing huge). The point is that people structure their activities differently depending on whether it benefits them or not. Tax considerations always affect business decisions - both whether to do something and how to do it. Risks might be worth running at low tax levels that aren't worth running at high tax levels, for instance. Stuff that generates taxable income now rather than deferred a few years is preferable at a low tax rate. Higher rates encourage activity that generates paper losses. And so on and so forth. That's why that graph looks like that: higher rates suppress certain kinds of activity and lower rates increase that activity.
No one should be surprised that people respond to incentives.
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