Tuesday, November 30, 2010

The why-I-want-the-government-to-raise-my-taxes FAQ

(Because it appears that this piece might be getting some attention, please note that all of the work in this blog is copyrighted. Feel free to link to it, but please do not reproduce it without permission.)

Because I signed on to a letter to president Obama asking him to allow the Bush tax cuts to expire on incomes over $1M a year I have been getting a lot of requests for interviews from the press. I made a brief appearance on the Lou Dobbs radio show, and today I almost got on Fox News (still might later this week I'm told). I also have a few requests from print reporters in the queue. The same questions seem to get asked over and over so I thought I'd write up a FAQ. Maybe that will save someone some time.

Q: Why do you want the government to raise your taxes?

A: I don't. I don't like paying more in taxes any more than the next person. But we have a stark choice before us: we can either raise taxes, or we can cut spending, or we can go the way of Greece and Iceland. All else being equal I would like to see us balance our budget by cutting spending, but I don't think that's going to happen. The Republicans were in charge for eight years, with control of both houses of Congress and the White House, and they oversaw the biggest expansion of government spending since F.D.R. And do I really need to explain why I'm not optimistic about the Democrats doing any better?

Q: If you feel this strongly about it, why don't you just write the government a check?

A: Because that won't do any good. The government is not a charity. It cannot and should not be run like one. Running a country is a team sport. The problems we are facing are too big for any one individual -- or even any group of individuals -- to fix alone. Whatever we do, we have to do it together.

Q: 45% (or something like that) of low-income individuals pay no federal income tax at all. In fact, they get money back from the government in the form of the earned income tax credit. Shouldn't we ask those people to do their fair share before we punish rich people for working hard and being successful?

A: Two answers. First, just because someone pays no federal income tax does not mean that they pay no taxes. Most wage earners pay payroll (social security) tax, medicare tax, and, if they buy stuff, sales tax. If they own a home they probably pay property tax too. So this idea that they are not doing their fair share because they don't pay "income tax" is, at best, playing games with terminology to obfuscate the truth. The problems we are facing are much too serious to tolerate that kind of semantic gamesmanship.

Second, we have to get beyond this argument about what is fair. Life isn't fair. Working hard improves your odds of getting rich, but whether you hit it or not has as much to do with luck (and your willingness to be ruthless and bend the rules) as it does with honest hard work. So fairness doesn't even enter into the equation. This is a practical question: we have to dig ourselves out of a very deep hole. It makes sense that we should ask those who are able to contribute more to do so.

Q: Doesn't it make more sense to let rich people keep their money so they can invest it and create jobs so we can grow the economy and get ourselves out of debt that way?

A: No, for two reasons. First, rich people are the result of a robust economy, not the cause. The United States is proof of this. The United States did not become the world's leading economic power because the rich elites of the world came here and invested. It became an economic power because it had conditions that attracted capable, hard-working but mostly poor (at first) people. "Give me your tired, your poor..." is not just an aphorism, it's the formula that led the U.S. to its heights of power. And what distinguished the United States at the height of its economic power was not that it had a huge cadre of rich elites that drove the economy, but that it had a robust and growing middle class. Whichever way the causality runs, it is indisputable that the country was stronger when the wealth was spread wide rather than piled high.

Second, you don't need rich people to drive investment, you need capital. Rich people are a source of capital, but they are not the only source, and they are not the best source. Institutional investors like university endowments and pension funds drive vastly more investment than high net worth individuals, and that is a very good thing because those institutions have broader fiduciary duties than individuals do, and so are more likely to invest in enterprises that benefit society as a whole rather than narrow individual interests.

Q: Won't taxing high income remove the incentive for hard work and risk taking?

A: No (though removing some of the inventive for taking certain kinds of risks might not be such a bad idea). Again, all we have to do to show this is to look at history. For most of the last 100 years, the marginal tax rate on the highest income brackets has been above 80%. In particular, in the 30 years after world war 2, when the U.S. was arguably at the height of its economic power, the top marginal tax rate was 91%. By way of contrast, in 1925 the top marginal rate was lowered from 46% to 25%. Four years later the stock market crashed. We've done this experiment before. I see no reason to believe we won't get the same results the second time around.

Q: Do you consider people who disagree with you unpatriotic?

No. Patriotism is not a zero-sum game.

[UPDATE:] Just got a new one:

Q: Why don't you just fire your accountant?

A: Huh?

Q: You rich people have accountants so that you can find loopholes in the tax laws so you don't have to pay taxes. Why don't you just fire your accountant so that you can't find those loopholes and end up paying more taxes? (Or something like that. The question seemed a little incoherent when it was posed to me. I suspect something got lost in the translation between corporate overlord and junior reporter. But here's the answer I gave.)

A: I don't know about other rich people, but trying to weasel my way out of paying taxes is not why I have an accountant. The reason I have an accountant is that the tax code is so complicated that I can't do my taxes any other way. Hiring an accountant is the only way I can figure out what I actually owe.

29 comments:

Josh said...

I'm not sure your logic is solid on the comparison of the marginal tax rates in the post-WWII economy vs. the pre-Great Depression economy. Where's the causality? Certainly there's correlation, but...

dabrown526@aol.com said...

Ron, I signed on to the letter too, for all the reasons you have given. Thanks for the clear, well supported argument.

I would underline a couple of your points: the disparity of income distribution is very damaging to our counties prosperity. The fact that, in the last couple of decades, the higher income folks have seen their incomes grow significantly while the lower brackets have fallen is mitigated by increasing marginal tax rates. We need a middle class in this country. Tax policy has seriously compromised it; here is a chance to improve it.

I like you do not much like paying taxes; I have done a lot of planning to get better tax treatment. But I have never considered my tax rate in making an investment decision. There are many elements that support investments like business prospects, general prosperity, interest rates, risk, management expertise. I have never considered my marginal tax bracket in making an investment decision.

Thanks again for this blog.

David Brown

Ron said...

> Where's the causality?

That's always a difficult question, and it's particularly difficult in macroeconomics because it's nearly impossible to do controlled experiments. But what we're doing now is about as close to a replay of 1929 (actually, I'd put us at about 1932 at this point) as you can get, and the result seems pretty clear to me. Whether or not the results are statistically significant depends on what you consider to be a data point. But if your model is: low marginal tax rates produce generally bad macroeconomics results (and vice versa) in time periods on the order of years rather than decades, we now have enough data points to make it a slam dunk by the usual statistical standards. I suppose reasonable people could disagree, but I think it would be a challenge to come up with a more plausible model.

Ron said...

> I would underline a couple of your points: the disparity of income distribution is very damaging to our counties prosperity.

I agree, but I've decided to deliberately underemphasize this point in my dealings with the press. The reason is that the people we need to reach are the ones who look at the arguments on the foundational assumption that Fox News is fair and balanced. To those people, the specter of Communism apparently still looms large, and any argument that even remotely hints at "wealth redistribution" or "equality of outcome" can severely undermine your credibility (because if you advocate these things then you're clearly just another pinko commie west coast liberal who is not to be trusted on anything). That's why I use the metaphor of "team sport." That's a value that is still unassailable by the conservative press.

imaskeptic said...

Ron, I am also a signer and I think everything you've said is well-said indeed. I think I would go a bit further on the fairness issue, however. The idea that rich people should get a tax-cut at the same time that millions of Americans have lost their jobs and/or their homes and are struggling to put food on the table can only be described as grotesque.

And on the often-heard claim that allowing the top tax rates to return to their pre-Bush levels constitutes "class warfare", I think Warren Buffet put it best:

"Yes, there is definitely class warfare, but it's my class -- the rich class -- that's making war. And we're winning."

Ron said...

> The idea that rich people should get a tax-cut at the same time that millions of Americans have lost their jobs and/or their homes and are struggling to put food on the table can only be described as grotesque.

You obviously don't understand the conservative mindset. On the conservative view, what is grotesque is punishing hard-working rich people, who have a God-given right to keep every last cent of their hard-earned money, so you can give public handouts to a bunch of lazy minority low-life loser scum who don't pay any taxes, half of whom are probably in the country illegally anyway. Oh, you don't think they're lazy low-life loser scum? Well, you're obviously wrong because if they weren't low-life loser scum they'd be rich! Suck on that, you California pinko commie liberal!

Damn, I'm getting frighteningly good at this.

Anonymous said...

Right on! Just saw you on Cavuto on Fox Business. Loved your reactions to his bizarre questions.

That guy thinks you don't have a right to "lecture" rich people, but he lectures against the poor every night.

Keep up the fight and I hope to see you on other shows soon!

Ron said...

Thanks. It felt like a disaster to me. After it was over I found myself wishing I'd said, "I can give you a lecture if you want to see what one sounds like."

Ron said...

Heh, I just got to see myself and it was not as bad as I thought. One of the weird things about doing a remote interview is that you can't see yourself or the person you're talking to, and there's no indication when you're visible to the audience. There's an interesting candid moment right at the end when I thought the camera was already off :-)

Dennis Gorelik said...

The best result in trimming spendings is accomplished when neither of parties controls the power (government gridlock).
For example, if President is Democrat and the Congress is controlled by Republicans -- it's a good start.
Fortunately it would start pretty soon.

Another way to trim spending is to push government to the brink of bankruptcy.
California is getting better with spending (even if it's not perfect).

Ron said...

> The best result in trimming spendings is accomplished when neither of parties controls the power (government gridlock).

We tried that in 1994. It didn't work then. I'm not optimistic it will work now. (Yes, we balanced the budget, but it wasn't because Congress cut spending, it was because revenues grew as a result of the Internet bubble.)

> Another way to trim spending is to push government to the brink of bankruptcy.
California is getting better with spending (even if it's not perfect).

That works for state governments because they do not have the option of devaluing the currency as a last resort. The federal government does.

The main problem is that there is no way to balance the federal budget without cutting entitlements (and probably defense too). That would be fine with me, but it's politically untenable.

Dennis Gorelik said...

1) Budget cutting worked just fine in 1994 - 2000.
If there was no power gridlock -- the government would outspend economy growth.
But it did not happen, which was good.

2) Devaluing currency works just up to certain point. After that point alternative currency takes over and refinancing debt is getting extremely hard.
Which would really push toward cutting spending.

3) Cutting entitlements and probably military spending is politically unfeasible only because there are not enough voters who are concerned about overspending and government debt.
But the more serious debt problem is -- the more voters are concerned about it. In the end cutting spending is getting politically feasible (again: California).

4) Cutting entitlements does not necessarily mean that the size of individual benefits shrinks. It would usually mean that it would be much harder to get such benefits: more legwork in order to get unemployment benefits, stricter requirements for that, longer waiting lines for expensive health services (like Canada does) etc.
Congress should cut overall spending and let bureaucrats figure how to stay within the budget.

Ron said...

> But the more serious debt problem is -- the more voters are concerned about it.

I hope you're right. Time will tell.

Ron said...

> Q: Doesn't it make more sense to let rich people keep their money so they can invest it and create jobs so we can grow the economy and get ourselves out of debt that way?

No. And stop spamming my blog.

Epsilon Given said...

Ron, I can't help but have some of questions: Why the heck do you think our Government *deserves* a single penny more than it's getting right now?!? Why the heck do you *want to enable* out-of-control government spending?!? And what makes you think that the Government will do a better job at spending this money, than the people who originally held it?!? This is assuming, of course, that tax increases actually *increase* the revenue--like tax decreases, sometimes it does, sometimes it doesn't.

You say that cutting entitlements, and cutting defense spending, are politically untenable. Well, whose fault is that? Isn't it the politicians' responsibility to make the case to the American people that we *need* to cut back? Because if we don't cut back on entitlements and defense, no tax increase is going to save us!

On a tangent, you are wrong when you say that raising taxes doesn't hurt a person's willingness to work hard. Seeing your money get drained away is demoralizing. It's especially demoralizing when you consider that many of the "rich" that the tax raises that will kick in by default will also hit many of those people who make only $30,000, drawn from their business for living expenses, but on paper make more than $250,000, because their business made that, but they put most of that money back into the business.

Oh, and you are right when you say that the "rich" didn't make America rich. Having freedom did. Of course, once you realize that, it's demoralizing to see how our freedoms have been drained away--and continue to be drained away--over the decades. And yes, raising taxes and passing Obamacare are direct attacks on freedom.

Ron said...

@Epsilon, did you not read the post? The very first question is:

Q: Why do you want the government to raise your taxes?

A: I don't.

So I don't think the government "deserves" the money, I don't want to "enable" out-of-control spending. But we live in a democracy, and as long as our elected representatives continue to authorize out-of-control spending we have a responsibility to pay for it.

> You say that cutting entitlements, and cutting defense spending, are politically untenable. Well, whose fault is that?

Assuming you're a citizen too, it's ours. Yours and mine. It is the fault of We the People who elect the politicians.

> Isn't it the politicians' responsibility to make the case to the American people that we *need* to cut back?

The idea that telling the American People the truth will get you elected is a nice fantasy, but that fantasy died in the 1980 and 1984 elections. Jimmy Carter and Walter Mondale were the last politicians to tell the American People the truth, and look what happened to them.

> On a tangent, you are wrong when you say that raising taxes doesn't hurt a person's willingness to work hard.

Are you a shill for Fox News? There will always be whiners who say that if they have to pay their fair share of the cost of keeping society running that they will take their ball and bat and go home. History shows that there will be plenty of people willing to step in and take up the slack.

> Oh, and you are right when you say that the "rich" didn't make America rich. Having freedom did.

No, you are wrong about that. Look at China. They don't have freedom, but they are getting rich. Look at Somalia. They are a libertarian paradise, having no functioning government at all, and yet they are one of the poorest countries on earth. What made American rich was not that it had no government, but that it had good (or at least effective) government. Look at Brazil. Their recent turnaround from economic catastrophe to the richest nation in South American was not because they had tax cuts (their taxes were and remain among the highest on earth) and a sudden resurgence of freedom, it's because the government went from being corrupt and ineffective to, well, less corrupt and more effective.

Freedom is nice. I'm a big fan. But freedom is not the cause of wealth any more than rich people are. It is one of the luxuries you can buy with wealth.

Epsilon Given said...

> Epsilon, did you not read the post? The very first question is:

> Q: Why do you want the government to raise your taxes?

> A: I don't.

> I don't think the government "deserves" the money, I don't want to "enable" out-of-control spending. But we live in a democracy, and as long as our elected representatives continue to authorize out-of-control spending we have a responsibility to pay for it.

I asked my question, more because your answers imply that raising taxes will solve our problems. It won't, and it will hurt our economy to boot.

>> On a tangent, you are wrong when you say that raising taxes doesn't hurt a person's willingness to work hard.

> Are you a shill for Fox News? There will always be whiners who say that if they have to pay their fair share of the cost of keeping society running that they will take their ball and bat and go home. History shows that there will be plenty of people willing to step in and take up the slack.

No, I am not a shilling for Fox News; I am only thinking about my own experience. As I have come to understand my tax burden, I'm not all that interrested in working for some entity beyond myself...and my own struggles with trying to reconcile my desires to get rid of my debt, versus the tax code's attempt to force me to work a certain number of hours a week, or else. I won't get into details here.

> The idea that telling the American People the truth will get you elected is a nice fantasy, but that fantasy died in the 1980 and 1984 elections. Jimmy Carter and Walter Mondale were the last politicians to tell the American People the truth, and look what happened to them.

Ronald Reagan was pushing his own truths: that we were overtaxed and over-regulated, and that the government spent too much. Unfortunately, beyond cutting taxes, he couldn't--or at least didn't--do much in the other two fields. Which leads us to...

> Assuming you're a citizen too, it's ours. Yours and mine. It is the fault of We the People who elect the politicians.

Yes, I fully understand this. It is why I'm doing what I can to pull myself away from government Socialism--starting with figuring out how to home-school my children. (It's taking kindergarden to bring my wife around to that :-).

And while I can't raise or lower taxes, I can do my darnedest to make sure that the Government doesn't get my money, at the very least, by limiting my income. That, too, is a challenge, because I need to balance that with my own needs and pursuits.

I will also still try my darnedest to elect good politicians--but when the political parties are so lousy at putting up good candidates, I can only have deep disappointment in even the ones I vote for.

Now, as for freedom bringing prosperity, your counter-examples are flawed, because you only look at the current moment, and not changes over time:

> Look at China. They don't have freedom...

But their freedom has been increasing, gradually, over the last few decades.

> Look at Somalia. They are a libertarian paradise, having no functioning government at all, and yet they are one of the poorest countries on earth.

While not yet a paradise, they are better off than when they had government--when their government was a totalitarian Communist regime. Do you really think Zimbabwe would be worse off if their government just collapsed and disappeared?

> Look at Brazil.

Corrupt government is tyranny. It's arbitrary, it steals your wealth, and it gets in the way of doing business. When a government gets rid of corruption, it creates an environment where business can thrive.

Hernando de Soto once explained how the labyrinth of laws made it difficult for individuals to build homes or grow businesses. He has done a lot of work to help citizens to make their things legal, and to make it easier to legalize their things, and this has also brought prosperity to people over time.

Ron said...

> I asked my question, more because your answers imply that raising taxes will solve our problems. It won't, and it will hurt our economy to boot.

That depends on what you think our problem is. If you think our problem is purely monetary then you're right, raising my taxes won't make a dent. But if you think, as I do, that our problem is one of fundamental attitudes, then setting a visible example might actually help.

BTW, the idea that raising taxes on rich people will hurt the economy is simply not supported by history. The period preceding the Great Depression was marked by some of the lowest marginal tax rates on upper income levels, and by some of the largest disparities between upper and lower incomes. The idea that letting rich people keep their money creates jobs is a nice theory, but it is not supported by the facts.

Epsilon Given said...

> That depends on what you think our problem is. If you think our problem is purely monetary then you're right, raising my taxes won't make a dent. But if you think, as I do, that our problem is one of fundamental attitudes, then setting a visible example might actually help.

I had similar thoughts as I heard about the bill that would extend the current tax rate. Apparently it's full of spending and earmarks--I would rather see it die, and even risk failure in January, if it means that spending dies with it.

> BTW, the idea that raising taxes on rich people will hurt the economy is simply not supported by history. The period preceding the Great Depression was marked by some of the lowest marginal tax rates on upper income levels, and by some of the largest disparities between upper and lower incomes. The idea that letting rich people keep their money creates jobs is a nice theory, but it is not supported by the facts.

The Great Depression was miserable for a whole set of reasons--taxes on both rich and poor were one of those, but so was a dramatic increase in regulations, and continuous uncertainty caused by Government.

The idea that taxing and spending would create jobs is also a nice theory, but it is also not supported by the facts.

Ron said...

> The idea that taxing and spending would create jobs is also a nice theory, but it is also not supported by the facts.

Actually, that's not true either. In the '50s and '60s the top marginal tax rates were 90% but unemployment was less than 5%.

It's really a very strong correlation: high marginal tax rates in the top bracket result in low unemployment, low marginal tax rates result, with a lag of a few years, in high unemployment and generally crappy economic conditions.

Epsilon Given said...

> > The idea that taxing and spending would create jobs is also a nice theory, but it is also not supported by the facts.

> Actually, that's not true either. In the '50s and '60s the top marginal tax rates were 90% but unemployment was less than 5%.

> It's really a very strong correlation: high marginal tax rates in the top bracket result in low unemployment, low marginal tax rates result, with a lag of a few years, in high unemployment and generally crappy economic conditions.

You state this as though the tax rate is the only thing that affects the economy. If a tax increase is a disaster, the economy can gradually recover from it; on the other hand, if an economy is (or at least looks) strong, other factors can run it into the ground. Indeed, Ludwig von Mises makes a strong case that artificially low interest rates can do just that; labor disputes, new regulations, fads, and other things can also affect the economy.

Nonetheless, I'd like to see the correlation, if you have it--as well as the data you use, the graphs, and any adjustments you may have made (or thought you needed to make). I have tried to check out your claims myself, but I only have income tax rates going back to 1913, and unemployment rates back to 1948, and a couple of articles about things like the corporate tax rate (which is also relevant to this)...all of which are crying out to be more closely examined, dissected, and put back together in a semi-coherent manner.

I don't have the time to do that right now, although I'd have the time to do this if I could get paid enough for it.

Ron said...

> You state this as though the tax rate is the only thing that affects the economy.

No. It is simply a fact. Obviously there are other things besides taxes that affect the economy.

> I'd like to see the correlation, ... I only have income tax rates going back to 1913, and unemployment rates back to 1948

Unemployment data only goes back to 1940:

http://www.bls.gov/cps/cpsa2009.pdf

I have not been able to find numerical data earlier than that, only graphs.

But even just that data is plenty to falsify the hypothesis that high marginal tax rates on rich people causes unemployment. Starting in 1966, when top marginal tax rates had been above 70% for 30 years, unemployment hit a historic low of 3.8% and stayed below that for four years. During the entire 32 year period of 1942-1975 when top marginal tax rates were ridiculously high, unemployment was below 6% for all but two of those years. That is as clear a result as you are ever going to get in macroeconomics.

Epsilon Given said...

Arrg! That's just employment data! It's not even a fraction of what I want to look at!

It doesn't even begin to address the other factors I'd like to look at, as well. (It took a little bit of work, but I was able to find marginal tax rates, and unemployment, but I wasn't able to find interest rates.)

Oh, well, I guess there's only so much you could do with data, especially data you don't collect yourself.

S.Broadbent said...

The entire problem with the 'system' and government spending is that most people don't realize the fraud that the Federal Reserve has perpetrated on the people.

When the Federal Government (here after FG) needs money, it goes to the Federal Reserve (hereafter FR) with an IOU. The FR takes that IOU and gives the FG Federal Reserve Notes (here after FRN).

These FRN's come with interest attached. It's logical to think that when you borrow money, you owe interest, but the sad reality is the FRN's are made out of nothing and backed by nothing, except other FRNs. If I gave you a piece of paper with $100 written on it, but nothing of value backing it, you'd be right to rip it up and throw it away.

Back to interest: if the money is made up out of nothing, why should any interest be owed? The FR isn't giving the FG anything of value. Interest is then charged by the FR which is where your Federal Income Tax goes.

The Constitution gave the FG the power to print and control the money supply. If the FG needs $10,000 it has the power to create that $10,000 without going to a third party. Some may ask, well doesn't that lead to inflation? Sure it does, but so does borrowing money from the FR.

When the FG uses the power to create $10,000 it can do so without interest owing.

Which do you want:

Create $10,000 but have $10,000 worth of inflation.

-OR-

Borrow $10,000 (with x% of interest owing), and also have $10,000 worth of inflation.


Let's add another interesting layer:

If the FG were to create $10,000 of interest-free money, they are in effect borrowing from the people. 'We the people' own the government. It does what we want through our representatives.

If the FG is borrowing money from us to pay it's expenses, and then taxes us to pay back the money borrowed, wouldn't those debt payments (taxes) then come back to us?

To put it a simpler way, if you borrow $10,000 from yourself to pay for something, does it matter if you repay your debt to yourself?

Up here in Canada, I know for a fact that since this country was founded, the government only ever borrowed between $31-37 Billion to pay for services that the government provides it's citizens. Only $31-37 Billion was ever borrowed? Yet our national debt is somewhere around $550 Billion! The difference being interest owed to the Bank of Canada, when the country could have been borrowing from itself, or creating it out of nothing.

The same applies south of the border. It would be in the interest of any American to find out exactly how much of your debt was ever borrowed to pay for services, and how much is interest on borrowed money.

Figure that out, take back the Federal Reserve, eliminate the interest, and you can change things over night.

Epsilon Given said...

This morning I realized one significant factor in the 1950's and 1960's prosperity that Ron overlooked: we had just bombed the heck out of Japan and Europe, and the Soviet Union and China were busy purging their citizens. In the meantime, our factories, and our populations, were largely intact, relatively free, and had no real competition.

So, perhaps instead of messing with the tax rates, we should just bomb the heck out of Europe, Japan, and Asia again! :-p

That doesn't change my desire to look at as much data as possible, though. There's so little data, though, and two other obstacles include: "real" unemployment only goes back to 1943 (before that it's pure estimates); income tax data only goes back to 1913, for the most part; calculations for inflation have been changed at least a couple of times to "bail out" Social Security.

One thing I did notice about what little data I saw, that Ron doesn't address: the top marginal rate is much lower today, than it was in the 1950's and 60's. If we were to raise our taxes to 90% without changing the margins, the economy certainly would be devastated! Admittedly, that isn't what Ron said he wanted; he just wants a 14% tax increase on those who earn $250,000 a year--which includes individuals whose "income" is their business income, of which they only take a small amount per year to live off, the rest going back into their business.

Ron said...

> we had just bombed the heck out of Japan and Europe

In 1969 unemployment was 3.5%. We had not "just" bombed anyone, that was 25 years ago. And top marginal tax rates had been high for 30 years. If high marginal taxes could cause unemployment, surely 30 years would be long enough for the effect to manifest itself.

> If we were to raise our taxes to 90% without changing the margins, the economy certainly would be devastated!

That is far from certain. One possible result of raising top marginal tax rates to their 1950's-60's levels is to restore the faith of our creditors that we will not default on our debt, which at the moment is a real possibility. The result could be an economic boom. Note that I am not advocating such a radical move, I am only challenging the claim that such a move would "certainly" devastate the economy.

> the rest going back into their business

If the rest really goes back into the business then they don't pay taxes on it. You only pay taxes on net profit, not gross income.

> No, I am not a shilling for Fox News

Could have fooled me. You are advancing every bogus argument in the Fox playbook.

Epsilon Given said...

> > If we were to raise our taxes to 90% without changing the margins, the economy certainly would be devastated!

> That is far from certain. One possible result of raising top marginal tax rates to their 1950's-60's levels is to restore the faith of our creditors that we will not default on our debt, which at the moment is a real possibility. The result could be an economic boom. Note that I am not advocating such a radical move, I am only challenging the claim that such a move would "certainly" devastate the economy.

I was somewhat mistaken on this point. When I made this comment, it was my understanding that our highest margin was about $80,000. According to this chart (which is what my memory was based on), as of 2003, our top margin is about $311,000. I have no idea how that would compare to $400,000 after inflation is adjusted; but raising taxes to 90% on income above $80,000 would be devastating.

> If high marginal taxes could cause unemployment, surely 30 years would be long enough for the effect to manifest itself.

30 years would also give the market plenty of time to adjust.

> > No, I am not a shilling for Fox News

> Could have fooled me. You are advancing every bogus argument in the Fox playbook.

Apparently I did fool you: I do not watch Fox News, and so I'm unfamiliar with their arguments. I have absorbed a lot from various sources over the years, and have reached my own conclusions; you have been providing data--superficially, at least--that contradict my conclusions.

Among the things I have yet to square with your claim that high taxes helps the economy is this question: if the economy was doing so well in the 1960's, why did Kennedy feel the need to raise taxes? Was it because he needed the money for government spending? After all, he was making the case that lower taxes meant higher revenue for government.

Economically, I've found evidence that the stock market plumeted during the Cuban Missile Crisis. Did Kennedy want to fix that?

But then, Kennedy didn't sign the tax cuts into law--LBJ did--and the stock market seemed to be doing fine when Kennedy was assassinated.

Ron said...

> it was my understanding that our highest margin was about $80,000

Where did you ever get that idea? The top bracket has never been anywhere near that low.

> raising taxes to 90% on income above $80,000 would be devastating

Probably. But that's a straw man. No one is advocating that.

> 30 years would also give the market plenty of time to adjust.

Adjust to what? Unemployment was ~5% for the entire 30 year period.

> if the economy was doing so well in the 1960's, why did Kennedy feel the need to raise taxes?

What in the world are you talking about? Kennedy wanted to lower tax rates.

It may not be Fox, but whatever your source of information is, it is not serving you well.

Epsilon Given said...

> Where did you ever get that idea? The top bracket has never been anywhere near that low.

I just discovered that the link doesn't work, so let's try this again. The chart I found for marginal tax rates is here:

http://www.truthandpolitics.org/top-rates.php

According to this chart, the top marginal rate goes as low as 30,950 in 1989. I do not know how accurate this chart is; it's the first chart I found that gives top marginal rates.

While you haven't been arguing for a top marginal rate of 90%, you certainly have been pining for the era when tax rates were that high. If that's what it takes to get back to 5% unemployment, like you claim, why wouldn't you advocate it?

> Adjust to what? Unemployment was ~5% for the entire 30 year period.

Now that I'm looking a bit more closely at the chart, are you seriously saying that employment was steadily 5% from the thirty-year period of 1933 to 1963? The highest rate of tax during that period is 92%, but the lowest rate during that period is 63%.

So, yeah, there was room for adjustment.

> What in the world are you talking about? Kennedy wanted to lower tax rates.

This is a serious flub on my part. I meant to ask the question: Why did Kennedy feel the need to lower taxes, if the economy was doing so well?

I still would like to have that question answered--although there may be a good explanation--but he clearly wanted to lower taxes to foster growth and increase government revenue--yet, as far as I can see, unemployment was low, and the stock market seemed to be humming along nicely, except for that missile crisis.

For the record, the other link (the Kennedy stock prices) I tried to reference is this:

http://www.tigersoft.com/Tiger-Blogs/7-22-2007/index.htm