80% tax rate Means prosperity
- Thread starter jueco2005
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I'm going to make one comment and one only, because the pitchforks and torches are already out I see.
It stabilizes the economy. You get some money drained out of the system in good times, and that money gets released in the form of deficit spending in bad times.
Which partially explains why the economy was much more stable prior to 1980, when deficits in good times were habitually lower and tax rates of course were higher. It also goes far towards explaining why the dot-com bust didn't do much economic damage, while this latter financial bust did: there was no reserve on hand at the Federal level for the inevitable flood of deficit spending when the economy went south bigtime. Instead rates were lowered and the boom went crazy, leading of course to a nice big bust.
As for Italy, those folks are fleeing, to the extent it's happening, because of the euro crisis. Tax avoidance in Italy is a high art, so it ain't the taxes.
It stabilizes the economy. You get some money drained out of the system in good times, and that money gets released in the form of deficit spending in bad times.
Which partially explains why the economy was much more stable prior to 1980, when deficits in good times were habitually lower and tax rates of course were higher. It also goes far towards explaining why the dot-com bust didn't do much economic damage, while this latter financial bust did: there was no reserve on hand at the Federal level for the inevitable flood of deficit spending when the economy went south bigtime. Instead rates were lowered and the boom went crazy, leading of course to a nice big bust.
As for Italy, those folks are fleeing, to the extent it's happening, because of the euro crisis. Tax avoidance in Italy is a high art, so it ain't the taxes.
Jeuco obviously meant the upper marginal tax rate, though he didn't make that very clear in his initial post. During the 1950's the highest marginal rate I believe reached 90% or close to that. That was a period of great economic expansion in the US and what many would consider to be a very healthy economy compared to today's. That only shows that an economy can be healthy in spite of high marginal rates. It is not an argument in favor of high rates. But those arguments do exist. Those that pointed out that the U.S. had an advantage coming out of the war are certainly correct. And that helped. The real tax rates today on everyone are higher than generally realized, especially on the poor and lower middle classes because most people don't understand the link between deficits and inflation. Some even mistakenly think the poor pay no taxes. Nothing could be further from the truth. They don't pay the direct income tax. The pay all the other taxes however, and the inflation "tax" tends to hit them harder as a percentage of their total income than those with huge unearned income.
I am in total agreement with Trefoil's post above.
I am in total agreement with Trefoil's post above.
Then you will indulge my mentioning that it is a logical fallacy to equate correlation with causation. Many productive countries have high tax rates, but this does not tell us whether they would be more or less productive with lower tax rates, whether the tax rate is the cause of the productivity, or how many individuals / businesses have avoided economic activity in these countries due to the tax system.
All your examples prove is that it is possible for a country to have a high rate of tax and still remain productive relative to some other countries. It does not tell us whether the tax rate is optimal or even desirable.
I haven't seen the methodology for this so cannot comment. I would suggest however that personal property rights including the right to keep the proceeds of your labour are perhaps amongst the most fundamental "economic freedoms" and governments who claim the right to a disproportionate amount of citizens personal income do not respect economic freedom.
Yeah we live in a world of proof. When I was in college doing my BS in Economics we were told how virtually economics was already a cooked caked. We had figured almost everything there was to be figured about how the economy works. Well 2008 proved all that crap to be terrible wrong.
I simply say this because I am not in the business of proving or disproving anything. Tax rates were indeed between 70% and 90% between 1940 and 1980. I am at work right now and I do not have the time to provide you with the stats that you want me to give you. I encourage you to find this yourself, specially look about President Reagan tax rates deductions. That happened in 1980 and its not hard to find.
One more thing. The prosperity of the 1980s and early 90s is credited to his tax rate policies. I think they have to do more with the Fed change in the way they calculate inflation and the different type of inflation and bubbles it now creates. ASSET INFLATION. Just like the 90s stock market.
1. The US did not prosper in the 1950s-1960s because of high taxes, but rather because of the aftermath of WWII. The period of 1945-1965 established the US as the leading manufacturing country in the world, not because of our manufacturing prowess, but rather because of our military might. At the end of WWII, the US had 5% of the world's population and almost 70% of the world's intact manufacturing and transportation infrastructure because most of Europe and Asia had been bombed to ashes during the war. For about 20 years, the US had the highest manufacturing price/wage structure in the world, from which the American middle class benefited greatly. By the mid-1960s, the rest of the world had rebuilt and the US had to actually compete against countries like Japan and Germany. Our market dominance began to erode in the 1970s, and the erosion increased in velocity during the 1980-90s as India and China entered the world markets. When hundreds of millions of people enter the global manufacturing workforce and are willing to work for fifty cents an hour, wages are going to fall, manufacturing is going migrate, and there's nothing anybody can do to stop it. It's inevitable that the economies of China and India will overtake the US because China's population is 4X the US and India is 3X. Simple math. The economic forces of gravity in action.
2. Though once there were "published" tax rates of 70-91%, very few ever paid taxes at those rates. Back then, there was something called "leveraged non-recourse tax shelters" that wealthy people used to eliminate as much as two-thirds of their tax burden. In addition, most very wealthy individuals kept a large percentage of their wealth offshore (e.g. Switzerland) where it was hidden from the IRS. A study by the IRS in 2003 showed that the richest people in the country paid about 32% of their income in federal taxes during those high tax rate periods (1950s-1960s). In the 1960s, Kennedy lowered tax rates; then Reagan further lowered the rates and also eliminated most tax shelters. In recent years, the tax benefits of offshore banking have been all but been eliminated. The richest 1% currently pay about 28% of their total income in federal taxes, a little less than the 1940/50/60s.
2. Though once there were "published" tax rates of 70-91%, very few ever paid taxes at those rates. Back then, there was something called "leveraged non-recourse tax shelters" that wealthy people used to eliminate as much as two-thirds of their tax burden. In addition, most very wealthy individuals kept a large percentage of their wealth offshore (e.g. Switzerland) where it was hidden from the IRS. A study by the IRS in 2003 showed that the richest people in the country paid about 32% of their income in federal taxes during those high tax rate periods (1950s-1960s). In the 1960s, Kennedy lowered tax rates; then Reagan further lowered the rates and also eliminated most tax shelters. In recent years, the tax benefits of offshore banking have been all but been eliminated. The richest 1% currently pay about 28% of their total income in federal taxes, a little less than the 1940/50/60s.