Do You Want To Go Back To The Tax Rates Of The 50s and 60s?

[ThomWV]

I have heard Republicans chant their mantra of 'do you want to return to the 90% marginal tax rates of the 60s' every time they sing in worship of their false idol, Ronald Reagan. It has never occurred to a single one of them that the high marginal tax rate is what paid for the Second World War. How do they expect to pay for this 'war on terror' of their's, by further reduction of the marginal tax rate?

[ProfessorGAC]

1. No, I Do Not

In fact, when one examines the macroeconomic condition of the 50's carefully, one will find that the consumption growth was a bit illusory, since there was 20 years of pent-up demand. The sudden surge in growth in that period was fueled by a combination of a populace that was deprived of luxuries for almost 2 decades, and by a sudden surge in defense research spending. (Rockets, nukes, submarines, etc.)

The tax rates were actually confiscatory and kept a lid on natural productivity expansion, so the economy would have been better than if the rates weren't that high.

However, i do believe that any tax rate that is insufficient to generate revenues equal to extraneous spending that causes deficits to rise needs to go UP! So, i don't want to see rates that high. No. But, they can be higher with no negative impact on growth or employment levels.
The Professor

[ThomWV]

4. You've Got A Flaw In Your Argument

Although I happen to agree with you more or less completely (I have a degree in Economics too) there is one part that can not be supported. It would be very difficult to call the living circumstance of the vast majority of Americans of the 20s and 30s (pre WWII) luxurious. Very few people had been "deprived of luxuries for almost 2 decades" at the end of that war. Luxury was the stuff of storybooks to all but a handful. Those very few who did enjoy luxurious living in the years before the war continued to do so during the war and after it too.

Oh, and those surges in defense spending didn't really get rolling until Sputnick and the ensuing "Space Race", which began in 1957, so you missed about a decade in there somewhere.

[ProfessorGAC]

12. You Misread My Post

What i meant by "luxuries" were things like refrigerators, cars, carpeting, TV's, etc. You took the word "luxury" too literally. I didn't mean it that way. I'm not talking a Cadilac vs. a Model T. I'm talking about being able to have a car at all. These things were around for decades, and when the 50's hit, people could finally start buying these things they had wanted for years.

Also, my 20 years INCLUDED the 30's. That's exactly what i meant. The 2 decades were based upon the depression reducing the money flow and the availability of goods, as well as the war where the mobilization included deprivation of many things. So, you disagreed with me by agreeing with me!

Lastly, you are wrong about the defense spending spike. First of all, the Soviets rushed Sputnik into space because their spies had intel that we were about to launch our own satellite. I just saw the History Channel doc on the Russian space program, and they launched that knowing there was a 40% chance of failure! So, we had been working on our own launch for 6 years at that point. Our first major missile launch (a failure) was in 1951.

Also, the whole supersonic research program started in 1946, and the work on the H bomb began in 1947 and ran through 1955 at a cost of almost $2 billion per year, in 1950 dollars. That was a HUGE expenditure for the gov't in those days. They spent 16 times more money on the H bomb than they did on the Manhattan project!

Rickover began his plans for a nuclear powered sub in the mid-50s, and we launched Polaris in 1960. (or '61) That thing took more than 2 years just to build! The development took about twice that! (Just making a nuke reactor small enough was a tough task that took lots of people and lots of time.)

So, the run up in defense spending started way sooner than you suggest.

So, we're agreeing except in details, and you misunderstood some of mine, and sorry, but you got some wrong.
GAC

[RaleighNCDUer]

22. Re: defense spending, let's not forget that defense spending

during the war was through the roof, and a fair amount of it was in salaries of the defense plant workers - but since the plants were all putting out armaments, the money they were making was not being spent on civilian goods, those refrigerators and cars. When the production lines went back to consumer goods the populace had decent savings built up because the consumer goods had not been available at reasonable prices for so many years.

Myself, I think Kennedy had it right in bringing it down to 60%.

[papau]

14. 1st time homes/cars/GI Bill/Marshall plan spending/Korea & unions raising wages for

the average person than all GDP growth going to the rich and corporate.

I think that covers the demand side of those 10 years - oh yeah - cold war defense spending which - with unions there - actually trickled down to the workers.

[rug]

8. I'm all for confiscatory tax rates.

[ProfessorGAC]

10. They're Bad For The MIddle Class

They restrict growth and put a crimp on employment and wages. Why would you be for something that HURTS the vast majority? Remember, also, that hardly anybody actually paid those rates. So, they were irrelevant. If they were tighter and more enforced, the middle class would have expanded far less in scope and far less extensively, economically.
GAC

[rug]

13. The middle class is a sociological term, not an economic term.

Confiscating excess wealth, if properly applied, benefits society as a whole, particularly poor and working people. Greed will survive even confiscatory tax rates.

[ProfessorGAC]

19. No, It's Not

Sorry, but the title is so wrong, that it ruins your whole premise. Every economist uses that as an economic term.
GAC

[papau]

15. I was told the same "bad idea" based on motivation and growth - but I never saw numbers

that tied it down without pretending that there was no shift in spending - and indeed pretending that more tax meant less consumption, as if gov consumption does not have the same effect.

But as you note, unlike Great Brittan, in the US no one paid those rates in reality except on investment income that they were too stupid to hide legally under the rules of the day.

In any case I believe the motivation idea has merit- so I won't do more than double the rates on the rich of today - say to the post JFK tax cut level.

[ProfessorGAC]

17. I Think 50% Is About Right

There have been tons of scholarly work (go to a college libary and look at the academic journal "Econometrics") on the negative impact of excessive tax rates. It's mathematically established that we can go too high. It certainly hasn't been proven just how high, "too high" is, though. We know 50% is pretty much ok, and we know 90% is too high. The gulf between them is huge, and while work has been done to run the models to see where the effect hits, different models provide different results.

But, in any case, we know that the Clinton rates were CERTAINLY NOT bad for business and investment, and that the current rates resulted in huge deficits. Since i, personally, published a paper back in the 90's, that showed deficits have a drag effect on growth, creates upward pressure on inflation, and reduces employment in the long run, then i'm for anything that prevents deficits, except in a true emergency situation. I don't think the WoT qualifies as that emergency, and neither does Iraq.
GAC

[papau]

33. Thanks for the info - It looks like great minds think alike - albeit only one - yours has proved the

thought to be true!

Sounds like neat research...

I go inactive - retired - in late summer - if not sooner - and I have a lot of reading to catch up on.

Again thanks :-)

[JackRiddler]

21. counterfactual argument

You're constructing a hypothesis that growth would have been greater with lower taxes in the 50s, which may be true but is unprovable. What is true is the correlation that the high-growth period through 1973 (the golden age of capitalism) featured higher tax rates on average than the lower growth period since then.

That being said: there should be no income tax at all below $100,000. From there, it can jump straight to 50% and go higher upwards of a mill. This is an argument from justice, not economics. It's crazy that anyone making 30K and trying to feed a family and pay rent has to pay income tax too. Up to 100K, you can actually argue someone's earning it without special positioning derived from the wealth and productivity of the society at large (I know, where to draw the line is ultimately arbitrary). Also, you want to keep a sense of incentives in place.

To make up the shortfall taxes should go into price, and not come out of income. A set of variable charges based above all on energy.

[ProfessorGAC]

23. It's Not Couterfactual

Go to your college library and do some research. I've published papers that establish that tax rates that are too high limit growth, employment, innovation, and for the very reason you suggest (price aborption) creates inflation that harms the poor and middle class more than it does the rich.

Three strikes in the same post.
The Professor

[JackRiddler]

26. I don't get the impression

that you're actually answering my post, so thanks, "Professor." I cede to your authority.

[ProfessorGAC]

27. Then I Apologize

I thought the point of your post was that one cannot establish that high tax rates limited growth. There are academics and research econometricians who do that very thing for a living!

What part did i fail to address? I'd be happy to continue the discussion.

And, the quotes aren't necessary. I'm for real. There are plenty of DU'ers who know me personally that can vouch for that.
GAC

[Hippo_Tron]

29. The rising tide lifts all boats, fiscal policy that ignores economics would be foolish

Just as foolish as a fiscal policy designed only to benefit the rich.

[JackRiddler]

30. Well...

What do you think of the idea of doing away with income tax altogether below a level that everyone can call well-off ($100,000 in today-dollars, say) and replacing it with charges on energy, production (based on resource consumption and environmental impact) and consumption (not just a VAT but graduated depending on necessity, health and environmental impact of product)? People at 50 K might end up paying the same tax as they do now, but it won't be lifted from their income, but paid to a large extent voluntarily, through the price of the things that one chooses to buy. Social and eco costs that are externalized by capitalist accounting to date will now actually be paid by the producer.

[Hippo_Tron]

31. I don't think it's practical for two reasons

1) I don't see how it could be successfully implemented

2) While taxing excess is a noble idea, the United States is a society that thrives on excess. Now I don't agree with excess at the expense of the poor, but I believe that even if we had programs to make sure that no American lived in poverty, we would still have the resources for people to have plenty of luxuries.

Personally I think we should eliminate the income tax on families making under 50k (I think individuals making 50k should pay some taxes) and raise the rate somewhere between 45-50% for all income between $500,000 and $1 mil and somewhere between 50-70% for all income over $1 mil (that includes capital gains and dividends). If we do that, eliminate pork barrel projects, and get the military industrial complex under control I see no reason why we couldn't make sure that all Americans have a standard of living above the poverty level.

[GeorgeGist]

2. Welfare Kings...

were less dependent on the poor then. St. Ronnie put a stop to that.

[Deja Q]

3. We will have to if we're serious about paying the national debt...

:shrug:

And, yes, it is true the higher taxes paid for WW2. Especially when those who benefit most are now paying the least for said benefits. I wonder how communist countries would treat them...

[sendero]

5. You can put the number at any number of places..

.... (the marginal tax rate) but the FACT is this. The pendulum swing of lower taxes equaling more growth has been passed and then some. right now, the country is AWASH in liquidity yet where are the jobs? Jobs and "investment in jobs" are not driven by "capital" any more, because "capital" is not the problem. the problem is now on the demand side, and no investor will "create jobs" when there is no one to buy the products s/he creates.

[Felinity]

6. Actually I'd like the public coffers replenished by the

absurd tax breaks to the wealthy courtesy of king bush. So yeah, I'd like to see a 5 year recovery tax plus a return to the pre * tax rates for the top 2%.

There could be an exemption or credit for individuals who did not get a government hand-out these past few years, but are now in the top 2%.

[Bluebear]

7. "How do they expect to pay for this 'war on terror' of their's"

"History? We'll all be dead!" says Bush. these people no doubt think the Rapture will happen and they won't have to worry about it.

[hamerfan]

9. 50s & 60s tax rate for corporations would be good

Corporate taxes used to pay for public education. It'd be nice to see that again.
And spare me the "corporations don't pay tax" crap. It's a user tax as I see it, and those were all Reagan-approved back in the 80s. :sarcasm:
dumpbush

[papau]

18. IRS Code 482 is not inforced on multi-nationals and tax credits via non-economic deals is not

chased since the RW courts now try so hard to find "economic reason" to almost anything.

Corporate tax rates on the books of 35%/33% are now effective tax collectors of only 10% or less of the income of large American corporations.

Medium size corps and small corps write off owner's personal expenses - and top managements personal expenditures - with no reaction by the IRS.

Corporations need to be abolished for tax purposes and only look through taxation - ala sub-S rules - should be allowed.

[Chemical Bill]

11. Are you talking about income tax, not capital gains?

How about permit fees and property taxes? Corporate income tax? Oil depleation allowance? It costs money to park in the White Mountain National Forest now, or even enter many national parks. My point is that the tax burden has been passed to the middle class wage earner in many ways besides federal income tax rates.

Bill

[bleedingheart]

16. It is shameful that we haven't raised taxes to pay for a war...

but then it is so typical that on NeoCon Fantasy Island...you can go to war and provide tax cuts.

The idea that my children, grandchildren and their kids will be paying for this war pisses me off.

[Jonathan50]

20. Take the cap off Social Security taxes

The government is borrowing the damn money anyway so give them a larger pool to borrow from.

[hogwyld]

25. Yeah! That's the ticket

Give the government more money! They've been such upstanding, frugal guardians of the money we already give them.:sarcasm:

[question everything]

24. No, tax rate should never be higher than 49%

Why would anyone wants to earn a living if one keeps less of every dollar? Yes, even if one makes a couple of millions.

But we should keep the Estate Tax, except on small businesses and family farms.

As for lower tax rate on investments, I think that this should hold for, say, the first $100,000, or so. Above that, back to regular rates.

With our current system, we are generating a distinct class of people who, since their income does not come from a paycheck, do not pay Social Security and Medicare taxes - often higher than income taxes - and then enjoy a lower tax rate on their source of income: capital gains and dividends.

[roamer65]

28. Yes. But the rates should be inflation adjusted.

The rates should move along with inflation so that the middle class are never affected. I do favor ONLY one exemption from these higher rates. If corporations and the wealthy invest their profits in the domestic economy (i.e. jobs, infrastructure, etc), they should not pay taxes on that investment. China requires profits made in their country to stay in China, so why aren't we doing the same????

[ileus]

32. 10% good enough for God good enough for uncle sam.