“What makes you think that this tax rebate will put anyone to work? The idea behind the stimulus deal is to give people tax cuts so they’ll feel richer and spend more. But government can’t make people richer on average; all it can do is shuffle wealth around. To pay Peter, you must tax Paul (or at least promise to tax Paul in the future, when your debts come due). Peter spends more, but Paul spends less.
Moreover, even if you do somehow manage to increase spending, that doesn’t mean you’ll put Americans to work. More likely, you’ll put Asians to work producing goods for the U.S. market.
President Bush seems to have become confused on this key point because he misunderstands supply-side economics. He has vaguely remembered that tax cuts put people to work, but he’s forgotten that only marginal tax cuts put people to work. Non-marginal tax cuts — such as the ones in the stimulus package — have exactly the opposite effect, when they have any effect at all.”
~Economist Steven E. Landsburg in Sunday’s Washington Post
During the 1920s, The Revenue Acts of 1921, 1924, and 1926 reduced the top marginal income tax rate from 73% to 25% (see top chart, blue line). Did the drastic cut in tax rates cause tax revenues to fall? No, just the opposite. Personal income tax revenues increased substantially during the 1920s, rising from $719 million in 1921 to $1.16 billion in 1928 (see top chart, red line), an increase of more than 61% (this was a period of no inflation).
The share of the tax burden borne by the rich rose dramatically. As seen in the bottom chart above, taxes paid by the rich (those making $50,000 and up in those days) climbed from 44.2% of the total tax burden in 1921 to 78.4% in 1928.
Source: Heritage Foundation, “The Historical Case for Supply-Side Economics,” by Dan Mitchell
Bottom Line: The significant cuts in marginal income tax rates in the 1920s increased tax revenues collected, and the share of taxes paid by “the rich” increased.
In 1980, the highest marginal tax rate was 70% and by 1988 the highest rate was cut to only 28%. The chart above shows what happened during that decade, exactly as predicted by the Laffer curve:
1. In constant dollars, the total tax revenue collected from the top 1% of taxpayers increased by 50%, from $58 billion in 1980 to to $87 billion in 1990.
2. On a per return basis, the average taxpayer in the top 1% paid 23% more taxes in 1990 compared to 1980 (inflation-adjusted real dollars).
Bottom Line: As the Laffer Curve predicts, significant cuts in the highest marginal tax rates during the 1980s caused both: a) total tax revenue collected (in real dollars) from the top 1% to increase, and b) the tax collected per return (in real dollars) for the top 1% to increase.
Some U.S. statistics for the year 1904:
Average life expectancy: 48 years
Homes with a bathtub: 14%
Homes with a telephone: 8%
Cost of a 3-minute call from Denver to NYC: $11.
Number of cars in the US: 8,000
Tallest structure in the world: Eiffel Tower
Average hourly wage: $0.22 ($4.61 in today’s dollars)
Average Annual earnings: $450 ($9,500 in today’s dollars)
Percent of births at home: 95%
Percent of physicians without college education: 90%
3 leading causes of death: Pneumonia, influenza, Tuberculosis
Percent of Americans graduating from high school: 6%
Number of murders in entire US: 230
Average length of recession: 22 months
30-year fixed rates for conventional mortgages (5.69% as of last week) are the lowest in 2.5 years, since since July of 2005 (see chart above).
Chief Executive’s fourth annual “Best & Worst States” survey recently asked 605 top executives to evaluate their states on a broad range of issues, including proximity to resources, regulation, tax policies, education, quality of living and infrastructure. CEOs were also asked to grade each state based on the following criteria: 1) Taxation & Regulation, 2) Workforce Quality, and 3) Living Environment.
“Overall, the message CEOs are sending is that over-taxed and over-regulated states are not conducive to the health of their businesses,” said Ed Kopko, CEO and publisher, Chief Executive Group.“This is the message they’ve been communicating since our poll started in 2005. However, in states like California, Michigan and New York, where we are increasingly facing a shrinking population, the message seems to have fallen on deaf ears, as CEOs continue to be extremely frustrated with the business-unfriendly practices in these states.”
The CD graph above (from today’s CD post) was featured tonight on CNBC’s “Kudlow and Company.” Here is a video link of the 5:35 minute segment, the discussion of the graph above occurs at about 1:30.
Using recent data, it would appear on its face that the Democratic proposal to raise taxes on the upper-income earners, and lower taxes on the middle- and lower- income earners, will result in huge revenue losses on both accounts (see diagram above, click to enlarge).
The chart above (click to enlarge) shows pay around the world for the positions “Head of Marketing and Sales” and “Data-Entry Operator,” according to Mercer. Also listed is the cost of living rank and expected pay increase in 2008.