Face it: low taxes on the rich = higher GDP growth

[MannyGoldstein]

Is a load of crap.

Lookey here:



from http://www.slate.com/id/2245781/

Looks to me that crazy-low taxes on the wealthy correlate with plummeting GDP.

So when Obama "caves" on restoring tax rates for the rich (which would still be too low), he's likely dooming GDP growth as well.

(I put "caves" in parentheses, as I've grown to believe that Obama's actually getting the outcomes he wants. There's no way you hire Bowles and Simpson to run a commission on the deficit unless you're planning on shared sacrifice for working Americans and tax cuts for the rich.)

[gmoney]

1. What about the RW talking point that "nobody paid" the 90% rates back in the day?

They claim that the tax code was different so the wealthy could shelter a lot more money legally, so while it was on the books, nobody actually paid the top marginal rates... I guess sort of like today.

Any verification if that's accurate or not?

[MannyGoldstein]

2. All told, the rich paid about 50% then vs. 17% today

The rich get the vast bulk of their lucre as capital gains - these were lower than 91% in the 50s (I forget what they were), and are currently taxed at 15%.

[kenny blankenship]

4. Great so they won't object to us restoring the top marginal rate to 90%, then

Have you noticed that they make shit up all the time? When they aren't outright lying in their stories about how the world works, or how it used to work, they are exaggerating selected details to the point of lying.

Income and wealth disparities in this country used to be far smaller than they are today. That can't be disputed. In its Roosevelt-to-Reagan formulations, the progressive income tax was a major reason for society having a more equal shape before the Reagan Revolution, if not the main one. The RW can have hysterical fits about how nobody really paid the 90% tax all they like, it just undermines their own arguments against restoring progressivity to the progressive income tax.

[immoderate]

5. There were structual differences.

(I claim no expertise but...)

There were incentives to reinvest, expand business, and hire workers. Now they can just bank that money, and lend it to the middle class, instead of raising wages.

--imm

[gratuitous]

9. I don't have documentation

But if your income is going to be taxed at 90%, you are sure as the world going to find a way to shelter that income, even if it means {gasp!} spending it on hiring people. When your tax burden is about one-third that rate, there's less of an incentive to spend that money on modernizing facilities or hiring workers and paying them what they're worth. And so that capital goes haring off around the world, seeking that extra tenth of a percent return for someone who will never be able to spend what he's already got.

This is called the Invisible Hand of the Free Market, and according to the winners of this particular game (and their loyal subjects who support them), it's the best system ever in the history of the world.

[Igel]

11. I've seen a few studies that made the claim.

They looked at the amount of federal tax paid by different income percentiles, both as a percentage of income and in dollar amounts (set to some standard dollar) and tracked them over time, as well as the total % of GDP taken in as federal tax.

I forget if they included FICA/Medicare or not.

They differed slightly but they all said about the same thing: In the couple of years after the tax laws were revised you'd get "aberrations" in the level of income paid as taxes, but it then returned to a baseline that varied little over the last 60 or 80 years. The story is that high tax rates = high incentive for sheltering or finding ways to avoid taxes, low tax rates = low incentive for sheltering or finding ways to avoid taxes. Shelters/etc. require effort and the effort is motivated by a sense of unfairness, not by simple greed.

Some of the mechanisms are cumbersome, some reduce income. When I started paying taxes income averaging was available and there were nice deductions for all sorts of charitable contributions. When the charitable contribution deduction was altered, the non-profit I worked for experienced a sharp drop-off in contributions. There were ways to structure income to put off taxation until income would be lower (keeping in mind that a decent percentage of high-income earners don't earn that income each and every year).

I find a kind of confirmation of this in studies that show significant losses or gains from altering the tax laws. I find that those I've seen not coincidentally focus precisely on the first couple of years after a tax-law change instead of the "steady state" that would be reached 3-5 years after the change.

As for the OP's chart, it can't show what it claims to show without some pretty strong assumptions. The "debunking" holds if the relationship between marginal rates and GDP was direct and biunique, with marginal rates alone determining GDP and GDP determined solely by marginal rates. That's obviously false; the OP's claim is too easily falsified. Between the quibble over what the rates were on paper versus what was actually paid, influence of recessions and other factors we'd be looking for a positive correlation (and then arguing over whether the correlation indicated causality or whether it pointed to a third, underlying factor).

[DCKit]

3. Throw a line on that graph showing the concentration of wealth among the top 2%...

and it'd be damn near perfect.

[La Lioness Priyanka]

6. lol. i was about to scream at you, when i just saw your headline

[piratefish08]

7. they don't have to convince us.

they only have to sell it to a whole bunch of willfully ignorant bigots and homophobes. seems to be working for them so far.

[closeupready]

8. K&R

n/t

[DirkGently]

10. Thank you. Part of our problem is trying to "fix" things with ideology, rather than reality.

[truedelphi]

12. The thing that needs to be pointed out, though,

Isn't just what our tax code does or doesn't do to the rich.

In the thirties, forties and fifties, people who were working class paid very little to the IRS on their incomes.

My dad, the only working adult in our household in the early fifties, made enough money to support us in style.

My family had two week vacations, a doctor who visited our home when us kids had the measles, good health insurance, and a new car paid for with cash every four years.

And he always had $ 1,000 in the savings account for hard times (This would have paid the rent on our two bedroom apartment for about 9 months.)

And the kicker? He never made more than $ 5500 annually during the fifties!!

But as inflation has taken away the working class' ability to live on TWO salaries, it has allowed the Tax Code to rape us. When I lived in the SF Bay Area, in the nineties, it was hard for people making 70 K a year to have $ 1K in savings. And guess the big difference between the $ 5500 annually my dad made, and the 70K struggling families made. Why while my dad paid very little in taxes, once you move up to the 70K realm, you pay a lot! even though, in many cases, you are able to live less well than we did back in the fifties.

[whoneedstickets]

13. It's just a theory!!!

Isn't that the refrain we hear from the right whenever Global Climate Change or Evolution is debated?

Contrast that with how every one of their pseudo-economic bullshit statements about the undeniable link between taxes and growth is accepted as god's given truth.

How is it that some largely mathematical general equilibrium theories based on a completely inaccurate model of human choice (expected utility theory with exogenous preferences) can routinely be passed off as sacrosanct but HEAPS of empirical evidence for GCC or Evo gets dismissed off hand?

[Uncle Joe]

14. Kicked and recommended.

Thanks for the thread, MannyGoldstein.