Do We Need to Reconsider Our Position on Taxes?
In the spirit of Michael Horn's request for more lefty points of view, I want to kick the tires on one of conservatism's bedrock principles: the notion that low taxes are the way to go. From both a perspective of raising revenues, and keeping people from "Going Galt", conservatives believe that higher taxes are the bane of a free people, whether they be put on the rich or the poor.
Let me present some data from the Tax Foundation:
| Tax Rate | Over $1955 | Over $2010 | Tax Rate | Over $2010 | |
| 20.0% | $0 | $0 | 10.0% | $0 | |
| 22.0% | $2,000 | $16,000 | 15.0% | $8,500 | |
| 26.0% | $4,000 | $32,000 | 25.0% | $34,500 | |
| 30.0% | $6,000 | $48,000 | 28.0% | $83,600 | |
| 34.0% | $8,000 | $64,000 | 33.0% | $174,400 | |
| 38.0% | $10,000 | $80,000 | 35.0% | $379,150 | |
| 43.0% | $12,000 | $96,000 | |||
| 47.0% | $14,000 | $112,000 | |||
| 50.0% | $16,000 | $128,000 | |||
| 53.0% | $18,000 | $144,000 | |||
| 56.0% | $20,000 | $160,000 | |||
| 59.0% | $22,000 | $176,000 | |||
| 62.0% | $26,000 | $208,000 | |||
| 65.0% | $32,000 | $256,000 | |||
| 69.0% | $38,000 | $304,000 | |||
| 72.0% | $44,000 | $352,000 | |||
| 75.0% | $50,000 | $400,000 | |||
| 78.0% | $60,000 | $480,000 | |||
| 81.0% | $70,000 | $560,000 | |||
| 84.0% | $80,000 | $640,000 | |||
| 87.0% | $90,000 | $720,000 | |||
| 89.0% | $100,000 | $800,000 | |||
| 90.0% | $150,000 | $1,200,000 | |||
| 91.0% | $200,000 | $1,600,000 |
The set on the right is today's tax rates, a structure we've had since the early 90's. We hope that lower rates will help with unemployment and spur business folks into finding more and more productive ways to get things done, because if taxes get really high, people will just sit around and horde their capital. Why work so hard to simply pay over half of it to the government? That would just be crazy.
The set on the left is the income tax rates from 1955 (the first column after the percentages are the brackets in 1950 dollars, the column after that is my estimation of those brackets in 2010 dollars. I simply multiplied by 8, assuming a growth rate of 4%). A rate structure of this, or something very close to it was used from 1942 to 1963, when the top rate got knocked down to 70%. During this period, we saw an incredible postwar growth and a fundamental transformation of American life. This period gave us McDonalds, mass homeownership (without a Great Recession), commercial television, mass air travel and our first tastes of consumerism, despite what we would today consider bad tax code. Were Ray Kroc and his ilk crazy?
Note that the code from the 1950s is the opposite of everything that we believe makes good tax policy. It's complicated, with 24 brackets, and is heavy handed, with the top rate at over 90% and the low rate at 20% (ouchie). Those of you paying a marginal rate of 28% today, would be paying 84% under the old code. In 1955, if you were to pay 28% marginal, you'd be making about $40,000 ($2010).
And I did a dirty couple of posts in Andrew Klavan's thread that I won't reproduce here that shows that lower taxes don't necessarily increase government revenues, something that I believed to be true before I did this research.
Even though I don't expect to sway anyone from their tax principles, I want to just plant enough seeds of doubt to get someone to say to themselves, "Maybe our footing on taxes isn't so solid after all. Maybe we should be more open to compromise on higher taxes..." Because that's the only way we're going to save ourselves from economic ruin.
Compromise.
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Comments :
Dec '10
Re: Do We Need to Reconsider Our Position on Taxes?
The only way to figure out whether raising or lowering taxes will increase or decrease government revenue is to raise or lower taxes.
I have no need to rethink taxes. You go right ahead.
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
We've already done that. Reagan's cuts in the 80's reduced marginal rates significantly, and the government did not increase revenues from the previous 8 years. In fact, it was actually worse.
Nov '10
Re: Do We Need to Reconsider Our Position on Taxes?
Calling Michael Labeit...
Dec '10
Re: Do We Need to Reconsider Our Position on Taxes?
By the way, in 1950, government spending as a percentage of GDP was just about half of what it is today.
Might that not have something to do with the growth?
Or do we owe all that growth to extremely high tax rates?
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
Don't tell me he did this topic already...
Dec '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal: In the spirit of Michael Horn's request for more lefty points of view, I want to....
Compromise.
Dec '10
Re: Do We Need to Reconsider Our Position on Taxes?
Are you thinking that we live in a static economy? We reduced rates almost thirty years ago, and since you contend this decreased revenue, we don't need to do that ever again to figure out which way to go?
Great. Raise taxes. We live but to serve.
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
Jerry Broaddus: By the way, in 1950, government spending as a percentage of GDP was just about half of what it is today.
Might that not have something to do with the growth?
Or do we owe all that growth to extremely high tax rates? · Mar 5 at 7:36pm
My thesis is that people got more productive in the face of very high income tax rates. I don't understand where you're going with this.
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
Nickolas
fullfrontal: In the spirit of Michael Horn's request for more lefty points of view, I want to....
Compromise.
Mar 5 at 7:40pm
If that solves the deficit/debt problem, then yes. Wouldn't you?
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
Jerry Broaddus
Are you thinking that we live in a static economy? We reduced rates almost thirty years ago, and since you contend this decreased revenue, we don't need to do that ever again to figure out which way to go?
Great. Raise taxes. We live but to serve. · Mar 5 at 7:43pm
I'm willing to believe that what they did in the 80's was necessary for the times, but today's situation is different. Is it so impossible to believe that an increase in taxes might not be a bad thing?
Heck, from this data, you might just as well assume that it's not taxes at all that is the controlling factor in revenues, but productivity. Technological gains and wealth creation may be what really gets the ball rolling, and taxes don't have as much to do with it as we thought.
Sep '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal: "Maybe our footing on taxes isn't so solid after all. Maybe we should be more open to compromise on higher taxes..." Because that's the only way we're going to save ourselves from economic ruin.
Compromise. ·
Maybe not. Raising taxes is the only way we're going to save ourselves from economic ruin? Lowering taxes may not necessarily increase gov't revenue, but raising them doesn't necessarily do so, either.
Since when is the goal of tax policy to optimize gov't revenue, anyway? I would think that the goal of tax policy would be to maximize economic freedom, thereby increasing productivity and ultimately everyone's wealth.
I don't think the period from 1942 to 1963 should be romanticized as a great economic boom time. My family and I (and the rest of the world) seemed pretty poor in the early 1960's compared to how much we have today.
Compromise by the Repubs is what brought us to near ruin, since the Dems define compromise as just agreeing with their policies and fiscal ideas.
Worrying about style over substance when the nation is on the brink of financial collapse is how I define compromise.
Dec '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal
Jerry Broaddus: By the way, in 1950, government spending as a percentage of GDP was just about half of what it is today.
Might that not have something to do with the growth?
Or do we owe all that growth to extremely high tax rates? · Mar 5 at 7:36pm
My thesis is that people got more productive in the face of very high income tax rates. I don't understand where you're going with this. · Mar 5 at 7:44pm
You believe that we get more productive in the face of confiscation of a larger portion of our productivity? And you wonder where I'm going with this?
What do you think productivity means?
By definition, confiscation of a share of the output reduces productivity.
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
Jerry Broaddus
You believe that we get more productive in the face of confiscation of a larger portion of our productivity? And you wonder where I'm going with this?
What do you think productivity means?
By definition, confiscation of a share of the output reduces productivity. · Mar 5 at 8:02pm
"During this period, we saw an incredible postwar growth and a fundamental transformation of American life. This period gave us McDonalds, mass homeownership (without a Great Recession), commercial television, mass air travel and our first tastes of consumerism, despite what we would today consider bad tax code."
According to our theory, this should not have happened with really high taxes. But it did. How can we explain what happened?
Jul '10
Re: Do We Need to Reconsider Our Position on Taxes?
I couldn't care less about arcane questions of which tax rates yield what level of revenue.
I only know that laboring more than half the year in order to have my income redistributed to parasites is slavery.
Forget your green eyeshades This is about principle.
Jan '11
Re: Do We Need to Reconsider Our Position on Taxes?
Dan Holmes
Maybe not. Raising taxes is the only way we're going to save ourselves from economic ruin? Lowering taxes may not necessarily increase gov't revenue, but raising them doesn't necessarily do so, either.
Since when is the goal of tax policy to optimize gov't revenue, anyway?
I think governments want to maximize economic freedom and revenues. It's a pair of Adam Smith's guides to taxation.
I understand that the nature of our present predicament isn't tax based, but spending based. So what I mean by compromise is to be prepared to trade lower taxes for lower spending, so everyone has something to lose and gain. I'm not sure how that would work out in reality, since that combination doesn't happen very often, but I don't think that we should make rock bottom taxes into idol worship. I certainly don't want to make taxes the Republican version of the Democrats' unions.
Jul '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal
Jerry Broaddus:
My thesis is that people got more productive in the face of very high income tax rates. I don't understand where you're going with this. · Mar 5 at 7:44pm
Let me give you one example:
My wife is an endondontist. Other than, perhaps, cardio or neuro surgery, it is the most taxing of all medical specialties. It is grueling work; the only way to cope with the attendant muscular pain is with constant physical therapy. Her fingers are riven with painful cracks that she has to fill in with surgical super-glue. The strain on her eyesight over time wears down her productivity.
In the face of that, knowing that she will get to keep less than half her incremental earnings after taxes, and realizing that she got into her discipline in order to have a high quality of life, what do you think she's going to do?
She's going to take 8 weeks' vacation instead of 4 and work 4 days a week instead of 5.
Now multiply that across millions of other high earners.
But then, I guess you've never paid a lot of taxes. To heck with "thesis".
Dec '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal
Is it so impossible to believe that an increase in taxes might not be a bad thing?
· Mar 5 at 7:52pm
Certainly not if you haven't ever paid any.
The economy is dynamic. It changes from day to day. The whole idea behind Laffer's curve is that the economy is changed by the share of output taken by the government. So far, all other things being equal, a reduction in tax rates has increased government revenue.
But of course, all things are not equal. Many other things change the economy as well. Increases in investment may not change output immediately, but may have a positive effect for a long, long time.
I meant what I said. As far as I know, there's no way to tell whether raising taxes will increase or decrease government revenue except to do it. But that isn't the whole story. Raising taxes will reduce investment. That's because money that would have been invested will be paid to the state.
The state will use it much less effectively than we greedy business owners would if we put it somewhere it would give us a return.
May '10
Re: Do We Need to Reconsider Our Position on Taxes?
It is very possible, according to the Laffer Curve, to cause a drop in government revenue by cutting taxes. Therefore, if one's objective is to maximize government revenue, then tax cuts are appropriate only up to point t* (point t* is a specific tax rate). Any tax rate after point t* will reduce government revenue.
However, this assumes that maximizing government revenue is a sound objective. You won't get a "hear, hear" from me on that one.
Now what about the co-existence of tax cuts and steady economic growth during the 50s? Well, in response I would say that, as usual, one cannot infer the existence of a causal link from the existence of a correlation. Who's to say that the high taxation contributed to the economic growth? I'd wager that economic growth persisted despite the high taxation.
Edited on Mar 6, 2011 at 8:03amJul '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal
Jerry Broaddus
You believe that we get more productive in the face of confiscation of a larger portion of our productivity? And you wonder where I'm going with this?
What do you think productivity means?
By definition, confiscation of a share of the output reduces productivity. · Mar 5 at 8:02pm
"During this period, we saw an incredible postwar growth and a fundamental transformation of American life. This period gave us McDonalds, mass homeownership (without a Great Recession), commercial television, mass air travel and our first tastes of consumerism, despite what we would today consider bad tax code."
According to our theory, this should not have happened with really high taxes. But it did. How can we explain what happened? · Mar 5 at 8:07pm
Are you really that unaware of history? America in that period benefited from the fact that the rest of the world was either prostrated by World War II, oppressed by Communism or sunk in grinding poverty, while we enjoyed a robust manufacturing and export sector. We alone operated under a perfect combination of global economic conditions.
We prospered despite a stupid tax code, not because of it.
Edited on Mar 5, 2011 at 8:28pmJul '10
Re: Do We Need to Reconsider Our Position on Taxes?
fullfrontal
I think governments want to maximize economic freedom
Most naive comment ever to appear on Ricochet.