“In 1921, when the tax rate on people making over $100,000 a year
was 73 percent, the federal government collected a little over $700 million
in income taxes, of which 30 percent was paid by those making over
$100,000. By 1929, after a series of tax rate reductions had cut the tax
rate to 24 percent on those making over $100,000, the federal government
collected more than a billion dollars in income taxes, of which 65 percent
was collected from those making over $100,000.”
104 thoughts on “Tax fact of the day”
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They still weren’t paying their Fair Share!!
Sowell is as despicable as his buddies – not interested in the truth – only his ideology.
these folks are not contributors to solutions – they are inciters of divisiveness and hate.
we need honest views of the facts if we are going to agree as a nation to do better.
All Sowell does is breed more discontent by essentially lying about the facts.
That’s interesting. If the above “facts” are lies, what WERE the rates and revenues in the 1920s?
here are the historical tax rates:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213
did the economy only work one way for the time period that Sowell discusses?
Nope.
He’s basically lying by cherry-picking and omission.
he’s ignoring the other times we did this and what happened.
this is typical of zealots now days. They’re NOT interested in the TRUTH – on the things that confirm their biases and ideologies.
he contributes NOTHING but more partisan and ideological tumult.
this is basically political vandalism …. little more.
Doesn’t look like he was lying about the top tax rates in the 20s. He must have been lying about the revenues then? Those are the only two facts he asserts in that paragraph.
re: “lying” he’s cherry-picking data that supports his premise and ignoring data that contradicts it.
That’s “lying”.
Before you mindlessly blather on about this any further Larry, how about providing the tax revenue numbers for the years 1921 and 1929 if they are different from those given by Sowelll, and produce a reference to the other years and tax rates that you think refutes Sowell’s claim that reducing tax rates on the rich can increase income tax revenue from that group.
After all the posts about this subject it’s mind boggling that you still don’t understand it.
@ROn – Sowell is a hack. he’s supposed to be a PHD economist but all he can do is cherrypick data.
He could make a objective case by including both other years and other year’s revenue but what he does instead is pick 1929 to “show” that more revenue came from the rich.
that’s as lame as you can get.
re: mindless blathering.. yepper Ron. you know it well. Wanna “school” again on Trust Funds ?
As expected, you have no actual response.
re: ” As expected, you have no actual response.”
the same one as the beginning
If you are a legitimate PHD economist and you want to convince that cutting taxes ALWAYS generates additional revenues no matter other conditions, then you do so by picking the many times taxes have been cut – and make the case with revenues accrued.
AND you’d NOTE that the Great Depression or other periods of high unemployment would result in LESS taxes from unemployed – NO MATTER the tax rate AND that in such conditions – People with wealth will end up paying a bigger share of taxes simply because with high unemployment there are fewer workers on the low end paying any taxes at all.
If you were someone seeking to do an honest look at this, you’d seek a lot of examples and you’d also have a metric that associated the size of the tax cut with how much resulting increase in tax revenues.
Thanks for finding an online version of his referenced work – NOT! If I was not already familiar with Sowells feckless tomes and bogus references, I might actually be willing to buy it – but we know right now that he had no intention of doing a valid analysis and his “references” are likely worthless as a plug nickle.
Sowell and others actually have the opportunity to better explain what tax cuts “worked” under Reagan and others but did not “work” near as well under Bush – taking us into deficit.
He could have ADDED to the body of knowledge and helped develop a better understanding among more people, won over skeptics, convinced people regardless of the left, right leanings. Be an honest broker of information.
Instead all he did was stoke the fires of ideological tumult – your typical vandal.
People can and do disagree. There are valid differences of opinion but we should all seek facts and truth – even if it undermines our own views. Sowell does the opposite and he does it while claiming legitimacy through his credentials.
If you took his “works” and took his name off of them – many of his writings sound just like your average right wing ideological zealot.
We live with sound bites today and that’s how folks like Sowell basically exist because even a cursory look at what he actually says exposes his game – and it’s not economics.
Larry,
Thomas Sowell is neither lying nor cherry-picking. As I explained in another comment, the reason to use the period of 1921 to 1929 is because those were the years when all else was equal. In 1929, the U.S. and foreign governments instituted deflationary policies which completely reversed the stimulative effects of the 1921 tax rate reductions.
“Thanks for finding an online version of his referenced work – NOT! If I was not already familiar with Sowells feckless tomes and bogus references, I might actually be willing to buy it – but we know right now that he had no intention of doing a valid analysis and his “references” are likely worthless as a plug nickle.”
You complained that Sowell didn’t provide a reference, and then you are shown to be wrong, claim that reference probably has no value in any case.
It is this very type of nonsensical and non-logical response that causes others to call you “hard of thinking”. Always some lame excuse for not accepting what others provide for you.
It’s likely the Sowell reference is way over your head in any case. The Sowell paper is a scholarly work whose target audience is other scholars, and it isn’t intended for you to puzzle over.
Calling Sowell’s paper a “scholarly report” is like calling the New York Post “scholarly.
the guy is a ideological hack. He may actually have an ability to contribute – but he has chosen to engage in hackery instead.
His basic premise – about tax cuts and revenue increases remains little more than a mystical belief.
tax cuts when you are already in deficit when you have no clue how much revenue will accrue – AND no follow-on policy/plan if the cut fails to perform and the deficit gets worse – is less than smart.
This is an area where a real economist could add to the body of knowledge instead of just saying the same sound bites over and over.
” You complained that Sowell didn’t provide a reference”
not true. I complained when I could not find it except as a reference at multiple blog sites in the right wing echo chamber.
then when I did find it, it was a pay wall site.
and a cursory examination of the other “references” the pay wall site offers gives a lot of insight into what kind of references they have in general – mostly whacko stuff.
but as I have said before – Sowell has always had the opportunity to contribute to the body of knowledge on tax cuts and their benefits/impacts, etc, and instead he has chosen ideological sound bites, repeated over and over.
he’s not a serious person.
LOL
Poor Larry. If you only had a clue. It must be comforting to so easily dismiss things you don’t understand or agree with.
actually, it would be MUCH more comforting if there were serious rational answers instead of just ideological myths.
If you boys actually had a clue, we’d be bombarded with “proof”.
but the truth is you have no idea how much of a tax cut will generate how much additional revenue.
You don’t even have a high/low RANGE.
If ya’ll had a clue – we’d actually have a legitimate plan for buying down the deficit and debt from increased revenues from lower marginal rates.
so where is that data?
where is Romney’s plan to do this?
We have Ryan’s and it’s nutty as a fruitcake and does not balance the budget until 2030.
see folks like Ron are self-admitted anarchists.
they are opposed to taxation as a concept – no taxation is acceptable – it’s ALL …THEFT.
right Ron?
Here, Larry, let’s try this. I will attempt to explain this to you once again, and you try really, really hard to understand it. OK?
Let’s start with the premise that government is more wasteful with people’s money than they are with their own money. Therefore money taken by government will not be used as productively as money left in people’s pockets.
OK so far?
Now this: People who are prosperous, become wealthy, do so by producing something others want and are willing to spend their money on. Sam Walton became very wealthy by providing inexpensive goods for people who wanted them. This is a GOOD thing. We are all better off because of it.
Any problem so far?
Now: The more money left in the pockets of Sam Walton and everyone else – by reducing the tax rate – means more prosperity, more income, more wealth, and more growth.
More growth eventually results in national income high enough to provide tax revenue higher than that previously collected at the higher tax rate.
Stop here to ponder that for a moment.
It ALWAYS works that way. More money left with taxpayers means more growth. More money taken by government means less growth.
Are you still there? Is your poor little brain cooked yet?
Now – If you can, let’s go on to the separate issue of government debt, and budget deficit.
if the government, or you or I spend more than our income, we will have a budget deficit and will go into debt. The solution for you, for me and for the government is to *spend less*.
If you earn $50k/yr and spend $100k/yr, the best solution is NOT go get a second $50k/yr job, but to reduce your spending to $50k/yr. You might have to order your spending priorities to decide which should be eliminated or reduced and by how much, but less spending is the solution.
Did you make it all the way? If you did, good for you, Larry. If you didn’t, I’m sure you will make some meaningless, off topic response to prove it.
… and that approach proved to be sustainable because the economy grew by leaps for decades to come after 1929… oh wait!
Why oh why doesn’t someone with energy and resources (would that I were such a person, alas) publish an exhaustive table/graph that compares percentages of total income tax revenues for bot America and Europe that would allow us first to compare thoroughly a range of specifics from the entire American history, and second compare American percentages with various European higher marginal tax rate models. Having such a map would expose this fact: that while European countries often have more progressive “tax rate” systems , they have much, much more regressive “tax payment” systems with the middle and lower economic groupings paying extraordinarily higher percentages of the total income tax revenues and the upper economic levels paying much less than they do in America. In respect to how much is paid, actaully and as percentage of overall revenue, America has the most progressive system in the world.
” Why oh why doesn’t someone with energy and resources (would that I were such a person, alas) publish an exhaustive table/graph that compares percentages of total income tax revenues for bot America and Europe that would allow us first to compare thoroughly a range of specifics from the entire American history,”
You could do that with respect to our OWN experience ALSO – right?
Someone who claims to be an economist who instead cherry-picks and incites divisiveness COULD do that INSTEAD of what he currently does.
http://taxfoundation.org/blog/no-country-leans-upper-income-households-much-us
reconcile the AEI data with this data:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213
total money?
did you look?
” Historical Top Tax Rate” ???
IF you can calculate this for ONE year why not other years for the same country -to make a case for the premise?
this is the problem,
we’re creating false narratives with cherry-picking.
and my question is WHY?
re: ” By 1929, after a series of tax rate reductions…”
wasn’t that the time when a lot of ordinary people LOST THEIR JOBS?
what is the point of excerpt?
is it the truth in general across other periods in our history?
it’s just more blather… written for those who basically are preordained to look for things that basically confirm their biases and Sowell willing provides the narrative.
this is the kind of thing that divides the country – false narratives written by people that are not providing useful insight – just ideological idiocy.
LarryG,
Click on the Thomas Sowell link in blue above. The quotation/excerpt does not do the article justice whether you agree with Sowell or not.
@Walt – will do but Walt my experience with Sowell is that he’s not a problem solver but instead stokes ideology and then it gets “excerpted” here ….
there are some good facts related to what Sowelll is talking about – but like a lot of things he does, he ignores the facts that contradict his ideology.
Such a person is simply not an honest broker of dialogue about issues. He’s basically a zealot on a jihad against other views/idea/concepts and he plays the game “dirty”.
that’s not useful IMHO. I can and do read all views in the political spectrum – and am often persuaded when
a substantial case is made and I note the folks that play it largely straight – from both sides of the political spectrum.
Sowell is not an honest broker IMHO and AEI and company know this but they still provide him a forum.
If we are ever going to get to a point, as a country to make needed changes, we need honest brokers dealing with facts – all facts.
LarryG, I agree with you. We have turned into a sound bite society where we are provided a title or zinger that appeals to the masses and everyone goes: “Yep, I was right.”
Take the Presidential debates for example. Two minutes to reply to a serious question and at least half of that is spent trying to get a zinger in that will be played over and over until the next debate. Any serious stand on their positions requires a few hours of reading on the candidates’ websites, but few people seem to want to make that investment so someone else will be glad to tell you what you think.
@Walt – regrettably this is where we are right now – few people willing to be honest brokers ..to find real answers.
we’re on a 24/7 sound-bite world now – and we’re never going to get to answers like that.
Larry: ” but like a lot of things he does, he ignores the facts that contradict his ideology.”
What facts did Thomas Sowell ignore, Larry?
Sowell: “” By 1929, after a series of tax rate reductions…”
Larry: “wasn’t that the time when a lot of ordinary people LOST THEIR JOBS?”
No, Larry. U.S. unemployment rate was still below 5% in 1929. Job losses really started in 1930, after a series of government actions and one weather event halted the 1920s economic growth. Some of those actions included:
Money supply contraction by the Federal Reserve from 1929 to 1933
Smoot Hawley tariffs in 1930
Severe drought starting in 1930, ruining farmland
Indeed, I DID go to Sowell’s Tome expecting data and charts… nope…
so then I searched for his reference “10″
“Federal Taxation in the 1920s: A Re-examination”
and I’ll let others plug that into GOOGLE to see what happens…
over and over, Sowell and other like-minded pop up with references to this work but where is the actual work? Maybe I missed it.
but the bigger question here is why look at the 1920s and in particular 1929 to attempt to understand how tax policy works – in general – why choose a time when the unemployment rate was more than 20%?
for folks that are “substantial” in terms of their claimed credentials – why not do a real analysis instead of sound-biting cherry-picked stuff and doing it in a way where it is ideological and basically partisan and divisive?
why not produce something that everyone would be convinced or more convinced by real facts and real analysis?
what he is doing is the political equivalent of what a basic vandal would do with a can of spray paint on a wall. He’s just not serious.
“Maybe I missed it.”
Yes, Larry, you missed it.
@Ron H. – I’m quite sure Larry’s point was that the article itself is not available for free on the internet. If you go to your link and actually try to read the article, you are told that you must have access either through some society membership, or you must register and then purchase access. I looked into that. It costs $35 for 24-hour online access.
” I’m quite sure Larry’s point was that the article itself is not available for free on the internet”
yup.
this seems to be a favorite tactic of folks like Sowell and others who seem to use references that are not really easily available.
when I see someone doing this – I question what their motives really are.
but if you take a look at the other offerings at the site that hold the Sowell reference, you’ll get a better idea of the types of stuff they have in their archive. It looks like a lot of whacko stuff to me ….
@LarryG – I know we’re all spoiled by having instant access to terabytes of information from our sofas, but it’s quite unreasonable to expect someone to restrict themselves to sources that are free online. As old-fashioned as this sounds, if you’re not willing to pay the $35 (and I agree that’s rather steep for a 21-page article when you can get entire scholarly books for that price), go to a library and see if they have the dead-tree version of the journal, or can get it on interlibrary loan. (A university library would be a better bet to have it in house than your local public library, if they allow outsiders to use it.)
When I was a boy, by crackey, we had to go to the library for _all_ our research. In the snow! Barefoot! And uphill BOTH WAYS!
re: references, free, costly, available – not.
When you write something FOR THE INTERNET yourself and you do provide references – most folks expect to be able to get to MOST (not all) of the references.
When you write for the INTERNET and a plethora of right wing echo chamber sites ALSO show your
references” and quite a few of your references are “not really available” then they come across as tactics to evade seeing the things that support your INTERNET writing.
I’ve noticed this with AEI and related writers but I’ve also noticed that charts will be shown with footnotes to CBO or OMB data but the charts are synthesized from data claimed to be from CBO/OMB but not shown how.
that’s at best sloppy and at worse evasive.
If you want to write for the INTERNET and you really want people to know how your references support your argument then you make than happen. If, OTOH, you are not, you leave the impression that you are evading doing it. There’s a pattern here with some folks and organizations.
@LarryG – Forgot to mention – there’s also a very good chance that a university has paid a blanket fee for complete on-line access, so you can get it free from a computer in the library.
Larry, Larry,
Sowell didn’t write that paper “for the internet”, although it is available *on the internet*, just as he didn’t write his hard copy books “for the library”, although they are available *at the library*.
I know that may be too fine a distinction for you, but it does matters.
Sowell couldn’t possibly anticipate that someone with your limited comprehension would struggle with his writing and references and complain about it.
sure he did. He would be an unknown person without the internet – and deservedly so.
he’s not a serious person because he engages in ways that are evasive and ideological.
@LarryG = “When you write something FOR THE INTERNET…”
As @Ron H has already pointed out, the Sowell paper was not originally written for the Internet. Look at the very beginning. E.g., “The paper used in this publication….”
I am not sure I understand your problem with CBO and OMB references – that _is_ on the Internet. I’ve never run into a problem checking such things out. In my experience, if there’s an honesty problem, it’s invariably information that was left out, not the information that went in. Can you give me a specific example of something that cited such data but you could not verify?
I completely don’t follow your complaint about the Sowell reference being on a site with whacko material. The Sowell paper mentioned in the Perry post was hosted on Sowell’s personal site – if it’s been copied onto nutjob sites, that’s not Sowell’s fault. If you’re talking about the reference inside Sowell’s paper that you couldn’t read, it was on the site of a J. Wiley, a very respectable academic/technical publisher.
The larger point, though, is that accusing someone of dishonesty just because you are unwilling to put in the work to check out the references you were given reflects far more on you than on them.
re: the internet
nope. this is more evasion IMHO.
It’s PROMOTED on the internet by AEI and dozens of other blog sites.
and related content is also published the same way
the copyright on the doc says 2012 -right
and it’s promoted here and in a bunch of other sites as advocacy.
Not that Sowell even uses comprehensive data and analysis in his own writing either…as you can see with this piece.
so he bails out of the issue by referencing something that he knows is behind a paywall.
I’ve seen this behavior before and when it’s a pattern, it speaks volumes about the author.
he’s simply not serious about actually dealing with the issues. He’s basically espousing an opinion and cloaking it as if it has legitimacy.
Who REFERENCES Sowell’s “works” Is it a diverse group of colleagues?
this is an example of his writing: ” Sowell compared President Barack Obama’s actions to Adolf Hitler’s in a June 2010 editorial for Investor’s Business Daily titled “Is U.S. Now On Slippery Slope To Tyranny?”[32] Sowell described the role of uninformed citizens (“useful idiots”) in the rise of Hitler and Vladimir Lenin, arguing that the U.S. was on a “slippery slope to tyranny” because citizens weren’t thinking about the issues.”
these are the areas of education and expertise that he claims:
Economics, Welfare economics, Education, Politics, History, Race relations, Child development
you look at the whole of who he is and IMHO, he’s not a credible analyst.
and again I will point out if you have a premise about tax cuts – picking 1929 and nothing else to illustrate your premise – is just plain lame.
Me: “Sowell didn’t write that paper “for the internet”, although it is available *on the internet*…
I know that may be too fine a distinction for you, but it does matters.”
You: “sure he did. He would be an unknown person without the internet – and deservedly so.”
Q.E.D.
I rest my case.
Michael P. Stein:
Yes. I’m also sure that Larry’s complaint was the paywall. His initial complaint was that he couldn’t find the reference, then when I pointed it out to him he complained that it was paywalled, and suggested that it probably wasn’t worth reading in any case.
I’m pretty sure Sowell’s target audience was other scholars who would most likely, as you pointed out, have access to the reference. I doubt that Sowell was thinking of Larry when he provided it.
Larry might be confused by the scolding readers of this blog give each other for citing something behind a paywall, without understanding that they are a different target audience.
You have provided all the other responses I might have made to Larry.
By the way, if you had to walk uphill both way to your library as a boy, you must be almost as old as I am.
we had originally found the pay wall.. and I consider than no reference when I’m dealing with folks who have a pattern of ‘sharing’ their views on the internet then referencing things that are not readily available.
One or twice. it’s an “oops”. On a regular basis, it’s evasion.
And this proves what, exactly?
1920:
http://www.irs.gov/pub/irs-soi/20soirepar.pdf
Total income of all returns: 23.7 billion
Total income of $100K+ returns: 727 million
1929:
http://www.irs.gov/pub/irs-soi/29soirepar.pdf
Total income of all returns: 24.8 billion
Total income of $100K+ returns: 4.4 billion
1930:
http://www.irs.gov/pub/irs-soi/30soirepar.pdf
Total income of all returns: 18.1 billion
Total income of $100K+ returns: 1.6 billion
1931:
http://www.irs.gov/pub/irs-sol/31soirepar.pdf
Total income of all returns: 13.6 billion
Total income of $100K+ returns: 779 million
Sowell is clearly cherry-picking. Total net income only grew by 4% from 1920 to 1929, but the high-bracket income grew by 500%. But did the cut in rates cause either of those growth figures, or was it the stock bubble? From 1929 to 1930, total net income fell by 27% and high-bracket income by 64%. From 1930 to 1931, total net income fell by a further 25% and high-bracket income by a further 50%. So tell us, Dr. Sowell – why weren’t marginal tax rates responsible for those falls, if they were responsible for the rises?
GDP:
http://www.usgovernmentspending.com/spending_chart_1920_1931USb_13s1li011mcn__US_Gross_Domestic_Product_GDP_History
“Post hoc ergo propter hoc” is a logical fallacy.
Michael Stein,
Reducing marginal tax rates does lead to economic growth. Economic growth does lead to higher tax revenues. It happened in the 1920s. the 1960s. the 1980s, and in the last decade.
Tax rates are not the only factor affecting economic growth. In 1928, the Federal Reserve sharply increased interest rates in order to reduce the outflow of gold and to dampen the allegedly overexuberance of the stock market. Foreign governments, reacting to the resultant shift of gold back to the U.S., retailiated by initiating their own deflationary tactics.
The reason Sowell picked 1928 as a comparison to 1921 is very simple: 1928 was the last year when “all else was equal”. The late-1928 and 1929 actions by the U.S. and foreign governments countered the stimulative impact of the earlier tax rate reductions.
I understand that given a constant tax scheme, economic growth leads to higher tax revenues. But even Laffer recognized that it was a curve, not a line – i.e., there is an optimal tax rate scheme from the standpoint of maximizing revenue. Lower _and_ higher tax rates than the optimal _both_ reduce revenue. So even if the 1920s top marginal rate changes were the prime driver of the increased tax revenue in 1929 compared to 1921, there’s no guarantee that the same will happen with Romney’s proposed changes (more on that below.) One thing that nobody here has mentioned so far: long-term capital gains (defined at the time as 2 years, not one) were given a favored (12.5%) tax rate in 1922. The later marginal rate cuts would have had no effect on the incentives to invest in stocks, since those profits were already taxed at an even lower rate. I need to dive back into the IRS data to try to identify the amount of profit reported on the sale of stocks and real estate.
Your claim – that cutting marginal rates always increases economic growth over what it would have been, and that this in turn always increases tax receipts over what they would have been – is tantamount to claiming it should have been a Laffer line, not a Laffer curve. Suppose we cut marginal rates to .00001%. How many years of economic growth will it take to get tax revenues back to where they are now? And how big will the deficit (and the debt service on the deficit) grow in the meantime? Now cut marginal rates from .00001% to .000005%. We’ve cut taxes in half, but how much additional economic growth will that cause? There’s a point of diminishing returns, surely. I have no idea where that is, but I submit that neither you nor Sowell do either.
There’s another issue regarding the current political debate. There is a difference between a tax cut and a tax rate cut. A Keynesian would say that cutting taxes by $1 billion while borrowing to maintain current spending levels has about the same stimulus effect as keeping taxes the same and borrowing $1 billion for additional spending.
Now, all other things being equal, a tax rate cut is a tax cut, and is seen as boosting the economy by both Keynesians and supply-siders. That’s not the case this time around. Romney is proposing a rate cut, but he’s going to eliminate deductions to keep revenues roughly the same (at least, that’s what he’s claiming he’ll do). The rate cut might change incentives, but the other growth-based argument for cutting taxes, not just rates, is that it will allow investors to do more productive things with the money they are no longer sending to the government. That’s not in the picture with the Romney proposal. Even taking the Sowell paper at face value, and accepting it as evidence that cutting tax rates _and doing nothing else_ spurs growth, I am not aware of any prior historical experience with cutting tax rates but clawing it back by cutting deductions. Without that, I remain skeptical that Sowell’s paper lends any support to Romney’s proposal on growth grounds.
what happens if you apply Sowells theory to the Bush Tax cuts?
did they perform as expected?
why, if “it always works” – we ended up with a deficit – that grew bigger?
Sowell supposedly has the chops to explain this but instead of looking at the tax cuts done since the 1920′s and comparing the amount of cut verses the revenues gains – for a wider range (or all) of the cuts, he does not.
Not only that, he provides almost no real data, just a narrative – his views, his opinions.. and not much more.
That’s not what I expect from a real economist.
Both Stockman and Barlett -on Reagan and one Bush adviser have expressed their belief that tax cuts do NOT always work the same way and that much of it is more opinion than science.
A GOOD economist – discloses this AND their own biases.
Sowell does none of this.
Larry,
The Bush marginal tax rate cuts definitely had nothing to do with the government deficit. That deficit was entirely caused by expansion of government spending.
The Bush tax cuts did exactly what Laffer said they would do: increase economic growth and increase overall government tax revenues.
Some have argued that the growth after 2003 rate cuts should have been higher. One error made in analysis of economic growth rates is to ignore growth of the working age population. The working age population grew faster, by percentage and absolutely, in the 1980s and 1990s than after 2000. That’s simple demographics caused by the baby boom births of the 60s and 70s and the baby bust of the 70s. It is also caused by the overall growth of the working population.
@Dewey -
” That deficit was entirely caused by expansion of government spending. The Bush tax cuts did exactly what Laffer said they would do: increase economic growth and increase overall government tax revenues.”
I would argue otherwise. Both with the Bush Tax cuts and with Ryans budget – the premise is that tax cuts will generate enough additional revenues to keep from going into deficit.
It failed under Bush – you say because of “too much spending” but the “too much” came from the same folks who approved the tax cuts – with the expectation that they’d balance.
Ryan and Romney are saying the same thing. You can cut taxes and get increased revenues and buy down the deficit.
It’s bogus. It does not work RELIABLY in all cases AND there is NO PLAN B if it fails – as it did under Bush.
You cannot cut taxes and then say that increased spending was the problem when the whole idea of increased spending was premised on the tax cuts to start with.
Larry,
Both in 2004-2006 and today I fault the Republicans for spending far more than was necessary. But it was definitely the spending – and not the tax cuts – which caused the deficit. You can look at government tax receipts in those years and see the substantial growth in money available to Congress and the president. But even that strong growth in tax receipts was far overcome by the uncontrolled spending of Tom Delay, Bill Frist, and George W. Bush.
re: ” But it was definitely the spending – and not the tax cuts – which caused the deficit. You can look at government tax receipts in those years and see the substantial growth in money available to Congress and the president. But even that strong growth in tax receipts was far overcome by the uncontrolled spending of Tom Delay, Bill Frist, and George W. Bush.”
we agree.
now tell me with some numbers what the increased spending was on.
show me 2000 budget and 2008 budget for the categories that caused the deficit.
…please…
John Dewey:
”” That deficit was entirely caused by expansion of government spending. The Bush tax cuts did exactly what Laffer said they would do: increase economic growth and increase overall government tax revenues.”
Larry:
“I would argue otherwise. ”
John Dewey:
“ But it was definitely the spending – and not the tax cuts – which caused the deficit. You can look at government tax receipts in those years and see the substantial growth in money available to Congress and the president. But even that strong growth in tax receipts was far overcome by the uncontrolled spending of Tom Delay, Bill Frist, and George W. Bush.”
Larry:
“we agree.”
LOL
Which is it?
Do you even know what you’re responding to?
” The Bush tax cuts did exactly what Laffer said they would do: increase economic growth and increase overall government tax revenues.” Larry: “I would argue otherwise. ” John Dewey: ” But it was definitely the spending – and not the tax cuts – which caused the deficit. You can look at government tax receipts in those years and see the substantial growth in money available to Congress and the president. But even that strong growth in tax receipts was far overcome by the uncontrolled spending of Tom Delay, Bill Frist, and George W. Bush.” Larry: “we agree.” LOL Which is it? Do you even know what you’re responding to?”
sure do. the same people who voted the tax cuts voted the higher spending and we’re told that they “knew” that the tax cuts were not sufficient to cover the increased spending.
I’m more of the theory that the had no clue about how much money the tax cuts would actually generate and their increased spending was a WAG in terms of the tax cut “covering” it.
but worst than that – WHY would you increase spending BEFORE you knew how much additional revenues the tax cuts would provide?
Remember, we’re talking about people who claim to be fiscal conservatives who “fervently” “believe”.
So you increased the budget from two wars, increased DOD and prescription drugs – then passed that budget to Obama and now say that Obama is responsible because he has not cut entitlements.
so.. we can’t cut DOD, we can’t increase taxes, we can only cut entitlements – and we’d have to completely wipe out virtually all entitlements to balance the budget.
this is why Romney is going to do if he gets POTUS?
ha ha ha… this is downright nutty.
Me: “LOL Which is it? Do you even know what you’re responding to?”
Larry: “sure do”
Well, you’ve just made it very clear that you don’t.
In two different comments John Dewey stated that tax cuts resulted in economic growth and then higher tax revenue. In response to the first one you said you would argue differently. To the second one you said you agreed.
Even you must see that it can’t be both.
Yes, Michael, I did claim that reducing tax rates always leads to economic growth, and that economic growth will leads to increased revenues. But I wasn’t considering a silly example such as the one you provided, where marginal rates are cut to 0.00001%. Such hypothetical situations are not worth discussing.
FYI, I think that enacting the tax rate which maximizes tax revenues is a dumb strategy. The “right” tax rate, IMO, is the one which enables maximum economic growth. As I see it, that would be one which enables zero transfer payments. I am not an anarchist, and I do favor public provision of a few services. That would include police, fire, and minimal defense spending.
Let me repeat, just so you dod not misunderstand: the goal of tax policy should be to maximize economic growth – and definitely not to maximize government revenue (and, by extension, government influence).
” As I see it, that would be one which enables zero transfer payments. I am not an anarchist, and I do favor public provision of a few services. That would include police, fire, and minimal defense spending. Let me repeat, just so you dod not misunderstand: the goal of tax policy should be to maximize economic growth – and definitely not to maximize government revenue (and, by extension, government influence).”
anyone who favors policies that would drive this country back to a 3rd world status is not an “anarchist”?
there are no countries in the world that work economically the way you advocate that are not 3rd world.
Name some that are not.
Larry,
The United States was not a third world country before FDR. The United States did not require massive transfer payments in the decades before enactment of social security and all the other social spending programs.
That most nations on the earth have succumbed to socialism is not evidence that socialism leads to prosperity.
re: ” Larry, The United States was not a third world country before FDR. The United States did not require massive transfer payments in the decades before enactment of social security and all the other social spending programs. That most nations on the earth have succumbed to socialism is not evidence that socialism leads to prosperity.”
that’s your view. I asked you to identify a country that has the policies you advocate that is not 3rd world.
got an answer or are you advocating something that does not exist in reality?
which countries in the world are not socialist and not 3rd world?
answer please.
@John Dewey – The hypothetical was to demonstrate that there were limits. Once you admit there are limits, then the question of where they lie is, I contend, a fair and reasonable one.
You see, I happen to _agree_ that the government has spent far too much money on many things it shouldn’t have done, including invading Iraq and defending some foreign countries that are perfectly capable of seeing to their own defense. But one thing I think it ought to do is pay its debts rather than defaulting. (If you disagree, speak up.) That requires at least enough additional revenue to service its debts, and (I believe) stop digging the hole any deeper. I don’t think we can get to the minimalist ideal cold turkey without serious negative consequences for the economy. (Again, speak up if you disagree.)
“Let me repeat, just so you [do] not misunderstand: the goal of tax policy should be to maximize economic growth – and definitely not to maximize government revenue (and, by extension, government influence).”
That’s a shift from the initial topic, which was Sowell’s paper discussing tax collections and the share paid by the wealthy. But it’s certainly a topic worthy of discussion. And on that topic, I maintain that I’ve posed a very legitimate question that you have not addressed: do you maintain that a tax rate cut causes growth even when the aggregate tax collection is unchanged due to offsetting policy changes? If yes, what evidence do you have for this? Reagan eliminated some deductions, but not enough to completely offset the effect of the rate cuts. Romney, on the other hand, has been promising that his proposal (whatever it turns out to be) will be revenue-neutral. When has there been a comparable tax policy change in the past?
I basically agree with Michael Stein.
Let’s find the optimal tax policy but let’s also pay our debt and make the cuts need to get us to balance.
One change would take care much of Medicare.
Just get rid of the subsidized Part C “gap”/”supplemental” coverage and go back to where everyone has a 20% co-pay.
MedicAid will be tougher as long as we won’t deal with health care and still agree to pay for it via MedicAid for those without it and can’t afford it.
Right now – we take in about 1.3T in tax revenues.
DOD spends 900 billion. If you look at the rest of “national defense” to include homeland security, NASA satellites, etc – it goes to 1.3T.
We spend another trillion+ on non social security entitlements INCLUDING things like VA and military pensions and health care.
Michael Stein: “Reagan eliminated some deductions, but not enough to completely offset the effect of the rate cuts.”
Marginal tax rates did not drop below 50% until 1987. Federal government tax receipts increased every year from 1987 until 1990. Is that the effect of the Reagan tax rate cuts you refer to?
Michael Stein: “I don’t think we can get to the minimalist ideal cold turkey without serious negative consequences for the economy. (Again, speak up if you disagree.)”
I agree that cutting all transfer payments immediately would cause a lot of problems, But that’s where we need to be heading.
I also agree that defense spending needs to be drastically reduced as well. I have sent that opinion about defense spending to every one of my elected officials – twice, I do not believe cutting defense spending by 30 percent will impact our economy for very long.
I also agree that it is imperative that we eliminate the government deficit.
Raising marginal tax rates will not increase the tax revenue as you believe it will. Only economic growth will allow tax revenue to grow. Higher tax rates will hinder economic growth.
@John Dewey – First, I agree with you that the Afghanistan and Iraq wars, Medicare drug program, etc. should get the blame for the deficit run-up under Bush.
As for what I meant by my comparison of Romney vs. Reagan: for the first year it was in effect, taxing that year’s income under the Reagan plan resulted in a lower total tax collection than would have resulted from taxing that same year’s income under the prior tax scheme. Thus the Keynesians can claim that the growth came not from the lower rates, but from the stimulus effect of giving taxpayers more money while keeping government spending up through borrowing. And supply-siders can claim not only an incentive effect from lower rates, but also that the money that was no longer being collected because of the rate cuts was freed up for investment.
For Romney, while the tax rates are lower, the deduction cut that is supposed to keep total collections the same even after the rate cut means there’s cannot be a Keynesian stimulus effect from the initial implementation. Nor can there be any additional investment capital made available from reduced tax collections in the first year. The only thing that could spur growth is the incentive effect. But I am not aware of any previous tax policy change that did not immediately leave more money in the hands of taxpayers compared to what they would have had under prior tax policy, relying _entirely_ on incentive effects for any subsequent growth. If we don’t have even one such example, what’s the evidence that rate cuts alone can spur growth, without the presence of at least one of the other two effects?
I also don’t understand what’s magic about 50%. Tax rates went from 70% in 1981 to 50% in 1982-86. Surely you’re not saying that had rates stayed at 50% beyond ’86, we’d not have seen increased tax collections?! BTW, capital gains rates went from 20% in 1982-86 to 28% in 1987.
Elsewhere you said, “4. After Clinton and Gingrich lowered capital gains tax rates in 1997, income from capital gains – and the subsequent tax revenues from those gains – soared;”
The sharp increase in realized capital gains started in 1995. In 1994, with a rate of 29%, total realized gains on returns reporting a net gain were $152,727 million – virtually identical to the previous year. (By “returns reporting a net gain” I mean that returns reporting a net loss, and thus offsetting tax collected from the net gain returns, are _not_ reflected in the figure.) In 1995 and 1996, with the same rate, returns reporting a net totaled $180,130 and $260,696 at exactly the same capital gains rate. It did accelerate from there, reaching a peak of $644,285 in 2000 – when the dot bomb burst. The next three years were all under the 1997 level. So how much of that capital gain was real growth, and how much was specuative bubble?
Please keep in mind that these are all nominal dollars – to do this correctly, it’s necessary to restate everything in constant dollars so that tax policy doesn’t get credit for simple inflation effects. Also remember that this doesn’t count returns with net capital losses – I submit that those should be netted out against the other returns to give a truer picture. However, I haven’t the time right now to do that research.
Increasing the favortism shown capital gains income of course encourages people to try to make their money that way as opposed to lending investment captial to corporations at interest. I question why the government should favor stockbrokers over bankers. Isn’t the government supposed to stop picking winners and losers, and let the market decide the most efficient way to allocate things (including investment capital!) without distorting its operation with special tax treatment?
Michael,
Since we don’t know where we are on the Laffer curve and economic growth is not solely a function of taxes (and the point of optimization doesn’t stay in one spot!), it’s just going to be a process of trial and error. A default position that cutting the tax rate when the top marginal rate means that you hand over to the government about 4 months of the product of your labour is going to encourage investment and production doesn’t seem unreasonable. At the extreme end (as per your example) when tax rates approach zero, it’s not a big deal.
I am not aware of any prior historical experience with cutting tax rates but clawing it back by cutting deductions. Without that, I remain skeptical that Sowell’s paper lends any support to Romney’s proposal on growth grounds.
In response to this I am going to paste into my comment a comment written by Jim Ancona because it’s great and I got his permission:
“You asked:
But if you eliminate deductions and exemptions such that after tax income remains the same, why is there still an increased incentive to work harder?
The reason you still have an incentive to work more is because the marginal rate changed. Let’s try an example:
Imagine a tax system with a single rate of 50% on income after deductions. You make $1000 a year and have $500 in deductions. Therefore your tax is:
(1000 – 500) * 50% = 250
Romney is elected and his new tax system has a single 25% rate and no deductions. Now your tax is:
1000 * 25% = 250
If your income stays the same nothing has changed. You pay $250 (25% of your gross income) in either system. And, to David’s point, there is no incentive to work less because your after-tax income hasn’t increased. But consider your incentive to work more. Before if you worked overtime to earn an extra $100, you would have paid an extra $50 in taxes for a net of $50. (Remember, your deductions are fixed, they don’t increase when you work more.) Now if you work the same overtime you get to keep $75 and only pay $25 dollars in taxes. If the extra take-home pay causes you to work the overtime rather than take it as leisure, that’s the substitution effect in action.”
Sorry, forgot to mention that Jim wrote that on Econlog blog.
@Methinks – Really, I understand that. I’m just asking if we have empirical evidence to show the extent to which people actually do work overtime or second jobs in response to the tax incentives.
Not everyone is in a good position to do both or even one. For example, I’d have to get another job, as my current position is salaried exempt. The extra hours I work don’t change my pay except on the rare occasions the customer is demanding extra effort and is willing to foot the bill. (In recent years it hasn’t even been recognized with fatter pay raises.)
Even nonexempt employees can’t work overtime if their employers don’t permit them. They too must seek second jobs, competing with people who are currently still looking for their first job.
It is not absolutely true that your deductions remain constant if you work extra. Expenses that may increase and thus offset the incentive in whole or in part: childcare, transportation, and unreimbursed employee business expenses. Even if you have not reached your deduction cap, if these are _deductions_, you only recoup (marginal tax rate%) of the expenses. E.g., if you earn $1,000 extra but incur $200 in deductible expenses to do so, your net is $800. At a 25% tax rate, you get to keep $600. That’s 40% gone. If my deductions are already at the limit, so the $200 is nondeductible and I am taxed on the full $1,000, I get to keep $550, for a 45% marginal tax+expense rate. For the purposes of incentives, it matters not to me whether that 45% all goes to the government or all goes to the babysitter without a single extra dime paid in taxes.
“he’s cherry-picking data that supports his premise and ignoring data that contradicts it.”
No Larry, I think that is you engaging in cherry picking by citing the TPC tax rate data as if it somehow disproves any of the other data.
I will at least give Larry credit for being consistent. It is just hard to argue with the fact that every time the top rate is reduced more taxes are collected. Folks paying the top rate aren’t dumb – they will find way to protect their wealth, usually in way that won’t grow the wealth of the country.
actually just wondering if it Always works and how much and if it fails how do you recover if you are already in deficit
Just for a change of pace it might be fun to try to lower the deficit by actually spending less. I tried it with my credit cards and it worked fairly well.
RE: lowering the deficit.
AGREE!
but when you DOUBLE the DOD budget and refuse to make it part of the cuts then you’re done because you cannot get there with cuts to entitlements alone.
The sequester cuts across the board and the folks who have been saying ” we have spending problem” are hollering like stuck pigs and demo-gauging cuts to DOD.
Romney is actually talking about INCREASING 2-3 trillion to DOD.
you can’t begin to get to a balanced budget by cutting only entitlements.
My concern is what happens if tax-cuts don’t produce increased revenues and we go even more into deficit.
what happens then?
Your question infers that the objective here ought to be to maximize government revenues. Unless you believe that government can produce a higher economic return from resources than can those from whom it takes them, then lower taxes will increase economic growth. Isn’t that what we want to maximize? Not government revenues.
The largest category of government “expenditures” is not defense, it is simply taking money from one set of people and sending it to another.
“Your question infers that the objective here ought to be to maximize government revenues.”
No.
We are 16 trillion in debt and adding to it every year.
we’ve spent the money we owe it. Even if we balance the budget today, we still are 16 trillion in debt.
no matter how you cut it we are now spending a trillion more than we take in – and DOD DID MORE than DOUBLE.
how do you fix this?
we pay less taxes now than at any time 60 years ago.
I’m fine with REAL fixes – i.e. REAL plans that will result in the deficit paid off – and no I do not believe supply-side works but I’m willing to go along with it if the folks that advocate it will provide a Plan B if it does not work – as happened under Bush. This is where our current deficit and debt came from – tax cuts that did not generate enough additional revenue to keep us from going into deficit.
Romney’s plan steal tax money from those who enjoy loopholes and transfers it to everyone else via a lower marginal rate – but it is “revenue neutral”.
To believe that this will generate additional tax revenues through growth driven by less taxes -requires one to believe that the recipients of the current tax loopholes are not spending that money in such a way as to generate growth – like lower marginal rates will.
Has anyone shown that less taxes gained from loopholes gets spent/invested any differently than less taxes from lowering the marginal rate?
We cannot put in place a tax policy that “believes” and has not even real projections much less scoring from CBO without risking an even worse disaster than what happened from the Bush Tax cuts.
tell me where I am wrong on this… I just think a “revenue neutral” plan is bogus in terms of expecting it to increase growth. It’s the same exact money – just distributed differently.
but I want to listen to others on this – not the idiot zealots and ideologues but others with some reasonable thinking instead of just parroting blather.
re: ” The largest category of government “expenditures” is not defense, it is simply taking money from one set of people and sending it to another.”
SS – look at the numbers guy:
http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2011.png
http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png
pay attention to Tax Receipts:
819 billion is FICA – from payroll taxes – NOT income taxes.
This money comes out of people’s paychecks and gets paid right back to them in retirement. It’s not a real part of the budget – it has no real effect on the budget.
After you subtract the 880 billion, what do you get?
you get about 1.4 trillion – to fund ALL of gov, DOD, AND Medicare (B,C,D), Medicare …
we are spending a trillion more -almost twice as much as we take in.
how can this be fixed by cutting income taxes or redistributing tax loopholes to lower marginal rates for all?
“we spent the money, we owe it.” – LarryG
We didn’t spend the money. At least I didn’t. Politicians did, and I’d estimate that I disapprove of at least 75percent of what they spend.
Yes, Larry, it always works, although the lag is usually a year or more. A reduction in marginal tax rates is always followed by economic growth which results in more federal tax revenues.
1. When tax rates were reduced in the 1920s, personal income tax revenus soared;
2. Following the Kennedy tax rate cuts in 1962, tax revenues increased 62% (33% adjusted for inflation) in 5 years;
3. After Reagan and Congress cut tax rates in the mid-1980s, government tax revenues increased by 54% (28% adjusted for inflation) in 5 years;
4. After Clinton and Gingrich lowered capital gains tax rates in 1997, income from capital gains – and the subsequent tax revenues from those gains – soared;
5. After the 2003 Bush tax cuts were implemented, government tax revenue increased 47% in four years.
The reason tax cuts have not eliminated deficits is very simple: Congress continues to increase spending faster than tax revenues grow.
How to solve the current government deficit: slash government spending and keep marginal tax rates low.
Wait–lowering rates on “the rich” actually resulted in them paying more money in taxes? That sure doesn’t fit the narrative we’ve been fed.
@Keith G. – No, it actually resulted in them paying less money in taxes for a few years after 1920, then more money, then a lot less money after 1929.
re: ” The largest category of government “expenditures” is not defense, it is simply taking money from one set of people and sending it to another.”
SS – look at the numbers guy:
http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2011.png
then looking at the pie chart for receipts (if I provide both links here, the comment goes to “moderation” hell)
pay attention to Tax Receipts:
819 billion is FICA(SS, Medicare PartA) – from payroll taxes – NOT income taxes.
This money comes out of people’s paychecks and gets paid right back to them in retirement. It’s not a real part of the budget – it has no real effect on the budget.
After you subtract the 880 billion, what do you get?
you get about 1.4 trillion – to fund ALL of gov, DOD, AND Medicare (B,C,D), Medicare …
we are spending a trillion more -almost twice as much as we take in.
how can this be fixed by cutting income taxes or redistributing tax loopholes to lower marginal rates for all?
You are only looking at one side of the equation — putting 20M folks back to work (the current unemployed) generate lots of income for the feds. You also have to real cut spending – Ryan’s identifies about 250B/year that can easily be cut (big bird, sugar goodies, aid to several countries, obamacare, etc). Ryan’s doesn’t touch the third rail of farm give aways, SS and Medicare but they are going to have to reduced. I want to start on the spending side, if you give those guys more $ in taxes they will just spend it on more vote buying schemes.
- the other problem with raising taxes it puts the feds in the role of picking winners and losers — their current batting average on winners/losers is really, really low.
@ Bob Aiken
re: ” putting 20M folks back to work (the current unemployed) generate lots of income”
how do you do that? You don’t do that by reforming the tax code, right?
re: Ryan – 250B – the deficit is 1T and Ryan’s budget does not reach balance until 2030 and it depends on unrealistic levels of growth.
SS is not a part of the budget. By law, SS will reduce payments to be no more than FICA revenues unless reforms are made.
It is not relevant to the budget.
Medicare Part B IS and before we go further, I’d ask that you consult this to calibrate costs:
http://dhhs.gov/asfr/ob/docbudget/2010budgetinbriefl.html
read it carefully because the costs are across Part A,B,C, and D and Part A is funded from FICA.
bottom line – you can “cut” Medicare – or you can raise premiums or reduce benefits, etc – but you’re not going to get enough cuts to balance.
We talk about unfunded liabilities but have we considered what DOD’s unfunded liabilities are – for retirees who will outnumber active duty very soon – and the military pays them pensions and health care for life – after only 20 years of service – no matter if you’ve never served in combat.
DOD is a problem and so is health care which is the real problem with Medicare and MediAid – AND private health insurance.
Yep, there’s our larry g still trying to spin BS into reality…
“how can this be fixed by cutting income taxes or redistributing tax loopholes to lower marginal rates for all?“…
Simple, cut out the spending…
Sen. Rand Paul’s 2013 Budget Proposal shows you how easy it is to accomplish it…
re: ” Simple, cut out the spending… Sen. Rand Paul’s 2013 Budget Proposal shows you how easy it is to accomplish it..”
but what does cutting spending have to do with a “revenue tax reform plan” in the first place?
Why isn’t Romney providing a plan for cutting the deficit like Ran Pauls or Paul Ryans or his own plan ?
What will revenue-neutral tax reform promising to accomplish? Is it promising to balance the budget?
is it promising to increase tax revenues to buy down the deficit?
How can you increase tax revenues if your tax reform is “revenue neutral”?
For that to be true, one would have to assume that the folks who currently have lower taxes as a result of tax loopholes spend that money differently than folks who would spend it as a result of a lower marginal tax rate.
How does redistributing taxes cut the deficit?
Or Juandos, are you saying that tax reform has absolutely nothing to do with balancing the budget and it requires making cuts?
Where are Romney’s “cuts” to balance the budget?
what is the real substance of what Romney is proposing?
ATTN RON H: The numbers you asked for.
https://docs.google.com/open?id=0Bxym9LfliOeVall3UFJ2dGk2aVk
The above spreadsheet analyzes IRS data from 1920-1931, not just Sowell’s cherry-picked 1921-1929. It includes GDP and CPI data, which also affect nominal dollars collected.
Total taxes collected in 1920 were over $1 billion. Total taxes collected dropped 33% for 1921 while GDP dropped only 17%. They did not surpass the level of 1920 until 1928, when GDP was 10% higher than 1920.
Sowell’s comment was however not about total tax receipts, but about the percentage of taxes paid by high-bracket individuals (income of $100K or more). In 1930 it fell from the high point of 65% to 50% (the level of 1926). In 1931, it fell again to 45%, about where it was in 1924-5.
But wait, there’s more. (Now how much would you pay?) In 1921, there were 6.66 million personal returns filed; 2,352 of those were high-bracket. Personal returns rose to 7.37 million (5,715 high-bracket) in 1924, but fell to 4.17 million in 1925 (9,560 high-bracket) and fell every year thereafter through 1931, the end of my range. High-bracket returns peaked at 15,977 in 1928, falling slightly to 14,816 in 1929.
Total net income in 1921 was $19.58 billion; in 1925 it was $21.89 billion. So it’s not surprising that the percentage of total taxes paid by high-bracket individuals would rise – in 1923, the _bottom_ bracket rate was dropped from 4% to 3%, then to 1.5% in 1924, then to 1% in 1925-28. (Source: http://www.ntu.org/tax-basics/history-of-federal-individual-1.html) It appears there was an earned-income deduction instituted in 1924. A lot of lower-income families dropped off the set of people required to file, and the remaining people at the bottom, whose income tended to be earned income (wages) rather than unearned income (interest, dividends, capital gains). So the cut in the top marginal rate was not the only factor in changing the percentage of total receipts paid by high-bracket individuals.
I gave the links to the IRS reports and GDP data in a previous comment. CPI figures were from http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx.
All together now: “Post hoc ergo propter hoc” is a logical fallacy.
Michael,
According to Professor Gene Smiley, of Marquette, top marginal tax rates really didn’t drop to non-confiscatory levels until February, 1926. That’s when the top rate was reduced from 46% to 25%. Although that cut was applied retroactively to 1925, it could not have impacted the behavior of top earners – the job creators – until 1926. This final cut to non-confiscatory levels helped spur the economic growth of 1926 to 1928.
As I noted elsewhere, the governments of the U.S. and other nations stopped the economic growth in late 1929 and thereafter. Interest rates were increased, top marginal income tax rates soared, Smoot-Hawley tariffs were enacted, and corporate tax rates were raised 15%.
Michael
Thank you for the great table. It’s more than I ever hoped for or asked for.
My challenge was to Larry, but as you can see, he needs all the help he can get.
If your whole problem is with the little excerpt of Sowell presented in this blog post, I encourage you to read the entire paper at the link provided above, and again here, for context and better understanding, as it’s possible you are missing the forest for the trees.
Sowell’s little example supports his argument that high income earners change their behavior based on incentives just as the rest of us do, and the additional data you thoughtfully provided does nothing to refute that contention. One of the major differences, however, is that high earners have much more flexibility in how they earn their income, as compared to lower income folks. When tax incentives encourage investment in productive activities as opposed to non productive investments like tax free bonds, high earners will invest more in productive activities that benefit us all. It’s that simple.
Although you haven’t indicated you believe it to be true, the notion that wealthy people will continue a pattern of behavior without responding to incentives is absurd.
To argue that “the rich” should be taxed more is to believe that somehow government can make better use of income than the people who earn it – another absurd notion.
the problem is that when you pick the depression to analyze the effects of tax policy – AND you don’t choose times after than to show the asserted pattern – then you’d not doing much beyond confirming your own bias.
and that’s not useful and it’s not a contribution to a better understanding.
I have never advocated that we only tax the rich and I fully accept the premise that tax policy does affect how money is spent/invested.
what I object to is using faulty data to justify policies that then fail to deliver the performance claimed AND we end up with a huge deficit and debt – AND…NO way to get out of it.
We then proceed to “blame” spending and all I can say is why are the same people who are advocating the changes in tax policy also increasing spending?
what do you do when your tax cuts fail to deliver what you thought they would?
Did we get from the Bush Tax cuts what we expected?
What do we expect right now ?
Right now, we have a T deficit and a 16T debt and this is PRIMARILY from the increased spending that voted on in the 2000′s. We did not particularly boost entitlements like Medicare – the benefits have not gone up. The demographics have pushed up the numbers – but WE KNEW THAT BEFORE it happened and we STILL boosted OTHER spending like DOD.
Now we’re in a structural deficit and we’re told that if we cut taxes more – it will lower the deficit.
I’m a skeptic. I don’t see how we know or how we even have faith that it will succeed -but most of all, I do no t see any kind of a Plan B if it fails.
It’s voodoo economics and Mr. Sowell – rather than contributing something useful in term of future policy changes to move us toward a balanced budget is basically defending an ideology – no matter what.
Actually, the entire issue would be truly academic if the purveyors of the tax cuts could give a good estimate of expected results.
then we could say things like “we can reduce the deficit by X dollars if we reduce the tax rate by Y percent.
but what Romney is proposing is a Revenue Neutral tax policy.
How does that bring in additional revenues?
The government doesn’t need more revenue, it needs less spending. The federal government collects $3trillion-a-year, that is about $10,000 per person, just to the Feds.
re: ” The federal government collects $3trillion-a-year, that is about $10,000 per person, just to the Feds.”
Try 2.1 trillion and THAT INCLUDES FICA.
Now take the 1.3 trillion that we really collect and try to pay for the 2.3 trillion we actually spend.
the thing of it is – we have a trillion dollar annual deficit and the folks that approved the increased spending for two wars, and DOD now won’t cut what they increased and blame others for not cutting entitlements instead.
We have a DOD budget and armed forces that are bigger than the next 10 countries combined.
and each military employee of DOD can retire on full benefits – pension and healthcare after 20 years of service even if they never served in a combat zone.
we hear of unfunded liabilities for entitlements.
Do you know what the unfunded liabilities are for DOD pensions and health care?
Do you know what happens to military retirees when they reach 65? They get social security and Medicare as well as military pension and health care.
are we willing to actually pay these costs?
in the next year or so – there will be more retired military (getting expensive benefits) than there will be active military.
“Do you know what happens to military retirees when they reach 65? They get social security and Medicare as well as military pension and health care.”
Have they paid FICA all those years of active employment?
re: “did they pay FICA”
Nope – taxpayers did.
you’re oppose to that correct?
Larry, Like any other employee a military employee has SS and Medicare taxes deducted from their pay. Their SS retirement benefits are based on that as well as other earnings they have during their working career.
The fact that taxpayers provide the money for someone’s paycheck doesn’t make that any different.
A government employee is paid for his labor just like any employee in the private sector. The government steals some of their pay just as it does yours and mine.
In any case Brotio is correct. The solution is less spending not more revenue. You are quibbling about the actual numbers and then swerving off into a rant about the DOD budget.
Ron -did you answer the question?
Are you opposed to any/all taxes and you consider all of them theft?
were were not talking about increasing spending.
we were talking about how you pay the debt caused by increased spending
AND
how you get rid of the deficit if the folks who voted for increased spending now opposed reducing that spending?
so they vote for two wars and doubling the DOD budget and then after they’ve blown up the budget, they’re opposed to cutting the spending they originally approved and opposed to raising taxes to pay for it and spend all their time talking about that we have a “spending” problem not a revenue problem.
Now what exactly would you do with folks like this?
they seem to refuse to deal with the realities that they were themselves responsible for creating.
re: military pensions and SS.
No.. I’m asking you why you talk about unfunded liabilities for SS and Medicare but not a peep about the unfunded liabilities for DOD pensions and health care.
why is that?
I though you were opposed to unfunded liabilities – period.
“Are you opposed to any/all taxes and you consider all of them theft?”
Larry. On more time. Taking someone’s property against their will is called theft. Everyone except thieves, as far as I know, is against theft. I am against theft. Taxation is taking people’s property by force, against their will. Taxation is theft. I can’t make it any simpler than that.
“How you get rid of the deficit if the folks who voted for increased spending now opposed reducing that spending?”
To reduce spending you may have to vote for the Libertarian candidate for every office you vote on. Neither Republicans nor Democrats will do it. Libertarians believe in various levels of very limited government and therefore low taxes.
“Now what exactly would you do with folks like this?”
“re: military pensions and SS.
No.. I’m asking you why you talk about unfunded liabilities for SS and… ”
Stop there, Larry, we are not going to discuss unfunded liabilities or net present value. You have proven countless times, beyond a doubt, that you don’t and won’t understand them. I won’t waste my time discussing them with you.
re: any/all taxes are “theft”.
those that think that and Ron is one – don’t seem to have much currency to discuss various aspects of tax policy itself – such as what to spend taxes on or cutting taxes to generate more tax revenue – to spend on more stuff or buying down the deficit and debt.
Those who blather on endlessly about future deficit/debt issues associated with unfunded liabilities of entitlements but ignore those same issues with DOD pensions and health care – seem to have a giant blind spot on perspective.
The reality is that spending on DOD is accomplished through taxation the very same as we fund civilian entitlements (“theft” according to Ron). Social Security is sure enough funded from taxes – payroll taxes vice income taxes – and as such that process is called earmarked entitlements – transfer payments – which basically means that people are forced to save and given that money back when they retire. Same deal with Medicare Part A – via the same payroll tax idea.
Medicare Part B,C, D is tax-funded, subsidized and has significant unfunded liabilities – which basically means between increasing demographics and increasing costs of health care – a growing budget issue – a legitimate serious issue to be concerned about.
but the military has the same demographic exact problem also:
” Military Soon Will Pay More For Former Soldiers Than Current Ones”
http://www.usnews.com/news/articles/2012/06/12/military-soon-will-pay-more-for-former-soldiers-than-current-ones
and yet there is virtually no discussion about unfunded liabilities for DOD.
and virtually no discussion about what percent of unfunded liabilities that DOD contributes to.
With DOD unfunded liabilities – it’s DOUBLE the civilian problem because ALL of DOD health care and retirement is funded 100% by taxpayers rather than private employers.
We have structural (annual) trillion dollar deficit that has already built a 16T deficit.
and the folks who created this deficit with increased military spending (like Paul Ryan) are saying that the way we fix this is by leaving DOD spending (and entitlements) – untouched while putting seniors on “premium support”.
All I am saying here is that most are refusing to deal with the “spending” realities.
We cannot balance the budget but cutting civilian entitlements only – the numbers do not work.
And if your game is to cut civilian entitlements only then you’re not serious about balancing the budget.
and of course, if you are like Ron and consider any/all taxes as “theft” then you’re not even on the same planet in terms of govt budgets.
Poor Larry. You have missed an obvious point again.
It’s perfectly OK to discuss things that exist, even if one believes they shouldn’t.
At this blog we have discussed, among other things, slavery, the war on drugs, and minimum wage even though many believe that none of them should exist. Taxes and tax policy are no different. Taxes exist, so it’s legitimate to discuss them.
What isn’t so OK is for you to continually spout ignorant nonsense about things you don’t understand despite the heroic efforts of many commentators here to lift you out of that morass of illogic you persist in sustaining.
http://www.usgovernmentrevenue.com/total_2012USrt_13rs1n
The link claims $2.5T and projects $2.8T for 2013. But even at your $2.1 that’s $7500 per-person just to the Feds. If you factor that 23 percent of the population is under 18, then the revenue burden is even worse. Also, total direct revenue to all government in 2011 was $4.9T, more than $15000 per-person. Government is making plenty of money.
2nd chance. Name a country in the world that is most like the US was before FDR.
105th chance: say something….anything…that makes sense.
waiting…
Still waiting…
Someone probably already covered this. However,:
Dropping the income tax rate from 70% to 24% is reasonably logical. At 70%, most people would probably do everything in their power to reduce their taxes. At 24%, there is much less incentive in doing so, considering they get to keep as much as 76% minus other non-income and state taxes.
Today’s situation is not similar. Dropping the tax by 20% us not likely to raise very much revenue for the government, because it should have very little effect on tax avoidance as would the drop from 76%.
Except that in the end, it could cause a successor government to dramatically raise taxes at a later time, resulting from an outright crisis resulting from a greatly expanded debt load. Not only would taxes likely increase, but the increased poverty resulting from a major obliteration of entitlement programs, could cause a depression greater than anything experience so far.
Kleht, you’re pointing out the obvious. A 20% drop from 35% would be a drop of 7 percentage points, while a drop from 70% to 24% is a drop of 46 percentage points and you’d expect a larger effect from a larger drop, but you need to think at the margin.
Point is, you’re not getting more tax revenue by taxing people in the higher tax brackets. They’ll change their behaviour and people are very very clever.