This is absurd. The tax increases may well have been in response to favorable economic conditions, in other words, an effect, not a cause.
I'm certainly not saying that's the only explanation, only that we don't know. But the article argues that the cause -- tax increases -- produced the effect -- economic growth. It is equally likely that the relationship is reversed.
This is what prevents economics from being a science, and why widespread science illiteracy makes us all fools.
> The economy then proceeded to have the longest expansion in American history thus disproving all Republican tax-cut theories, though no one seems to have told them.
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You use "disprove" in a very odd way.
No one has said that tax increases necessarily kill economic growth. The claim is that tax increases hurt economic growth.
A dollar taxed (or borrowed) and spent by govt accomplishes something. A dollar left in the private sector accomplishes something else. Do you really think that the average govt spending is more valuable than the average private spending?
The 90s had a lot of factors that led to economic expansion. Do you have data/research that explicitly links tax rates to that expansion? The numbers don't seem to add up like that to me.
You're knocking down a strawman. The position is that higher tax rates reduce economic growth. Your evidence does not contradict that assertion. Doesn't even touch it. Further, you're dealing with claims and a study that are ideologically driven... so more precision is required, not less.
You began with the question of whether higher marginal tax rates made economic growth "impossible". After finding that there was growth between 1940 and 1980, you should have concluded "no, it does not make it impossible as we have a counter example". This follows and is called induction. But you for some reason chose to then alter the premise and say you proved that high marginal tax rates are not harmful. You have in no way proved this. For all you know without those high marginal tax rates, growth would have been even HIGHER between 1940 and 1980. I am sure you do not believe this to be the case, and that is a very reasonable belief, but understand that it is not proven by this evidence (nor is it disproven mind you).
True evidence-based proofs, the way its done with science, requires that you test one variable. In the example above you'd have to have a parallel economy where all else was the same except the tax rate. Unfortunately this is impossible, but this does not mean we get to change what "proof" means. Economics would work much better if everyone came to terms with the fact that it is untestable and was honest with themselves that all opinions regarding it are just beliefs, regardless which side you fall on.
I'm only demonstrating that the assertion that increasing marginal rates always means a larger share of the tax burden is put on the rich -- this is not true.
The example is given to be demonstrative, not to represent a real world scenario.
Everything depends on the specific numbers, clearly. That's the point I'm trying to make as well.
""All that this graph reflects is that as taxes were decreased for the upper %1 over the past half century, they were increased on everybody else."
False."
I have to disagree. The Tax Reform Act of 1986 (as well as the cut of 64) disproportionately affected the lower income brackets. As a matter of record, tax rates are higher for the lower income brackets, and lower for higher income brackets than at any other point in US history.
"The top tax rate was lowered from 50% to 28% while the bottom rate was raised from 11% to 15% - the only time in the history of the U.S. income tax (which dates back to the passage of the Revenue Act of 1862) that the top rate was reduced and the bottom rate increased concomitantly."
"The "rich", the top 1%, are the prime drivers of wealth creation. They are the reason GDP grows faster than population growth."
Anyone who has capital gains from the labor of others. It is misleading to say that they are responsible for this growth themselves. Their wealth is invested in those in other income brackets, and used to drive up GDP. There's nothing morally wrong with this system.
I agree that incentives for the upper %1 have a disproportionate effect on GDP. That said, from an economic perspective, I happen to believe that the Laffer curve has a very steep right side, and that we are to the left of the peak. This means that by raising rates, more revenue can be collected. For example, the 1981 tax cut did not improve revenue collection.
I believe that we should raise rates in order to pay for progressive social programs. The upper %1 have benefitted from not only their skill and ability to drive wealth creation, but also a good deal of luck.
Progressivism is a form of social insurance. It is an acknowledgment that perhaps, through no fault of my own, I might have been born poor, or with skills not suited to the modern economy. It is the understanding that in the richest nation on earth, no one should want for food, shelter, or healthcare, no matter what their ability to contribute.
This is not rhetoric. It is a judgement of values, and an assertion of a logical argument.
Think of it in terms of human capital. Those born into poverty today lack the access to crucial resources, such as education, to contribute to the economy to their full potential. It is a colossal waste of human resources to allow these conditions to continue. Imagine if Bill Gates had been born in Compton instead of Seattle.
Thanks, I appreciate this. I didn’t really have data to support my conclusions, but echoing rhetoric I’ve heard before. Glad to know I was wrong. It’s not surprising that it’s polarizing when the end result is taking money from people.
That said, I’m really curious of the causation of higher tax rates on economic growth. Like, if you want to still be just as rich, you have to work even harder.
Personally I think slightly higher taxes would be acceptable, but I don’t at all trust the economic efficiency of the federal government right now. We need food, transit, houses, healthcare and education... but I don’t think these would be spending priorities.
The point is that the source you cited to claim they didn't doesn't actually prove that, so what reason do us random HNers have to believe you over the initial claim that the higher tax rate in the past actually addressed this problem?
> From 1960 to 1985 the top marginal tax rate crashed from 90% to 30%
Nobody paid 90%. The tax rate reduction was countered with the closing of loopholes. (There are still a lot.)
Evidence for this is the nearly constant fraction of GDP collected in taxes. The other points are correct. Also, real incomes have both increased at the top end and shifted up for the population.
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.
I need no convincing that decisions get made based on tax rates.
However, I call "correlation is not causation" on this particular article. It is highly possible that tax increases and migration are both linked to some third variable ('local conditions') and the /Testing the validity of the results/ section of the article does not convince me that this possibility has been ruled out. Establishing why there is a link here requires more information.
I have observed that governments hate raising taxes because it upsets voters. In practice, resistance to raising debt takes a back seat to upsetting voters. If a government is raising taxes, in my experience, the economy is struggling and making up the government budget with debt isn't an option (for whatever reason). It is possible that rate of tax follows a similar principle where prosperous regions need a lower rate to achieve a better result.
Assertion: "high" (greater than 50%?) marginal tax rates make economic growth impossible.
Evidence: Top tax rates between 1940 and 1980 were between 70 and 90%. Growth was higher than it was after 1980.
Conclusion: the assertion about the harmful effects of a high top/marginal tax rate is false. (I think this process is called "induction").
Note that this does not prove that high tax rates are beneficial, only that they are not harmful.
It's certainly possible that the general slowdown since 1980 is due to other factors, such as growing scarcity of cheap energy and other materials. But investigating alternatives will screw with the livelihood of somebody in the top 0.01% income earners, so one might argue it's harmful to your health to push too hard for such :-)
The coincidence does falsify the argument that raising tax rates would prevent economic expansion.
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