History US tax rate history - A return to the glory days

[Ryumast3r]

I have an interpretation of that first part, but I don't think it really matters: I think by your edit, you would agree that the US went from nothing to being a superpower in about 100 years, right?

Aye, and we got stronger still over the next half a century, and I think many would argue, we're much farther ahead than you'd think we are.

 

[WhoWee]

Too big to fail isn't brought about, in general, by free markets.

What does create too big to fail is corporatism.

But of course, the answer by interventionist is let's subsidize failing companies.

Case in point, GM. How many more bailouts are we going to give a company that continues to fail. If you want to talk about governments creating unfair business models that's a prime example.

Honda, Toyota, and so forth create above average cars: they continue to fight tariffs from domestic automobile makers. GM creates automobiles that aren't up to market standards, hey, it's OK we will throw money at you. Who creates the moral hazard?

If you apply your logic to the welfare state whereby generation after generation stay on the Government dole - and continues to expand in size - eventually the system consumes it's host - doesn't it? GM should have been put through the Chapter 11 process - where a Federal judge would have sorted out union contracts and other bad agreements (for GM). Instead, the bond holders were robbed, the union bailed out and given the company, long established dealers lose their franchise and personal investments in favor of new and diverse dealers (not Republican?), and the taxpayers deprived of future tax revenues (approx $45Billion) - and the President gets to campaign on the "success" of his intervention. Please label this entire post IMO.

 

[SixNein]

When considering the best path to US solvency, it might be useful to consider the tax rates that helped to build this country.

Back when Kennedy took office, the top marginal tax rate was 91%. Today, it is 35%.
http://www.taxfoundation.org/publications/show/151.html

It appears to me that the incessant drive towards lower taxation, which imo has helped to bring the US to its financial knees, is unprecedented in the modern context.

In my opinion, the economic performance of lowering taxes is subject to the finances of the government and its status globally. I do not subscribe to the notion that lowering taxes will always be to the benefit of the economy. If a government has x amount of cash inflow and y amount of cash outflow where x=y, lowering the taxes will introduce a cash flow imbalance, and the government will be forced to provide a portion of its services on credit plus interest. So the government is taking out a bet on the future production and global status of its country. In the short term, such a tax policy can be beneficial because it gives companies an edge on competition; as a result, the future earnings of the nation can increase. But I only believe this policy is effective when the imbalance is allowed to endure for a short period of time. If such a tax policy is ran for too long, the budget imbalance becomes too outrageous to control because it grows exponentially. This effects everything from the value of the currency to the governments ability to adopt a new infrastructure and maintain its existing infrastructure. So the government is eventually put into a position of either punishing the economy through spending cuts and higher taxes, or it is faced with punishing the economy through default. Either way, its a bad situation.

So I'm inclined to agree with you that the tax policy of the United States has caused damage to the economy.

 

[Al68]

In my opinion, the economic performance of lowering taxes is subject to the finances of the government and its status globally. I do not subscribe to the notion that lowering taxes will always be to the benefit of the economy. If a government has x amount of cash inflow and y amount of cash outflow where x=y, lowering the taxes will introduce a cash flow imbalance, and the government will be forced to provide a portion of its services on credit plus interest.

No, it won't. Why do so many people think massive, expensive, ever-growing government is the only option?

I agree with you that government spending on credit is just as bad as (or worse than) government spending from taxation, but what those two bad options have in common is the problem: too much government spending.

Massive government spending is what hurts the economy, either by confiscating existing private capital that would otherwise be used to create more wealth, or by increasing its debt. Both of those options rob our grandchildren of their future, unless of course they wise up and decide they have no obligation to pay debts they didn't incur.

How long can government keep the dollar from crashing by obtaining more and more credit based on a promise to confiscate even more private wealth that hasn't even been created yet? (yes, that is how the value of the dollar is currently being propped up).

 

[talk2glenn]

I agree with you that government spending on credit is just as bad as (or worse than) government spending from taxation, but what those two bad options have in common is the problem: too much government spending.

Technically, this isn't quite true, assuming consumers can have access to the same credit markets as the government (a reasonable assumption). In fact, consumers are indifferent between policies: they are no better off if taxed now for spending today, or taxed tomorrow for spending today (government borrowing).

This indifference condition is a fundamental premise to contracyclical government stimulus.

But your point is spot on: too much spending, whether financed by taxation or borrowing, is a bad thing. The difficulty is in quantifying "too much". I actually wrote a paper on this topic, where I proposed using election outcomes as a proxy for consumer willingness to pay. Rational consumers of government spending will stop consuming at the point where the marginal gains are maximized. I think we can look at election outcomes over changes in government expenditures and/or effective tax rates as a proxy for this; consumers express a desire for more government consumption by electing progressives, and less by electing conservatives.

Since the end of WW2, the effective tax rate has been approximately 18% of GDP. Efforts to substantially increase it have been political failures, and efforts to substantially decrease it have been political failures (resulting in the election of the opposition party, whether the effort to change spending came through taxes or borrowing doesn't really matter). The current dire straights of the Democratic party are largely due, in my opinion, to the present vast disequilibrium: spending is too far out of whack with the optimal rate. Ironically, this was a big part of the Republican party's problems in 2006 and 2008; I think Democrats simply misunderstood voter intent. Spending has been slowly outpacing revenues for years, but voters were relatively tolerant of the phenomenon because of the combined recession, foreign wars, and slow rate. They've now reached a breaking point.

 

[WhoWee]

Technically, this isn't quite true, assuming consumers can have access to the same credit markets as the government (a reasonable assumption). In fact, consumers are indifferent between policies: they are no better off if taxed now for spending today, or taxed tomorrow for spending today (government borrowing).

This indifference condition is a fundamental premise to contracyclical government stimulus.

But your point is spot on: too much spending, whether financed by taxation or borrowing, is a bad thing. The difficulty is in quantifying "too much". I actually wrote a paper on this topic, where I proposed using election outcomes as a proxy for consumer willingness to pay. Rational consumers of government spending will stop consuming at the point where the marginal gains are maximized. I think we can look at election outcomes over changes in government expenditures and/or effective tax rates as a proxy for this; consumers express a desire for more government consumption by electing progressives, and less by electing conservatives.

Since the end of WW2, the effective tax rate has been approximately 18% of GDP. Efforts to substantially increase it have been political failures, and efforts to substantially decrease it have been political failures (resulting in the election of the opposition party, whether the effort to change spending came through taxes or borrowing doesn't really matter). The current dire straights of the Democratic party are largely due, in my opinion, to the present vast disequilibrium: spending is too far out of whack with the optimal rate. Ironically, this was a big part of the Republican party's problems in 2006 and 2008; I think Democrats simply misunderstood voter intent. Spending has been slowly outpacing revenues for years, but voters were relatively tolerant of the phenomenon because of the combined recession, foreign wars, and slow rate. They've now reached a breaking point.

my bold
If you limit the voting eligibility to people who actually pay taxes - you might be on to something?

 

[Al68]

Technically, this isn't quite true, assuming consumers can have access to the same credit markets as the government (a reasonable assumption). In fact, consumers are indifferent between policies: they are no better off if taxed now for spending today, or taxed tomorrow for spending today (government borrowing).

I agree with this in general, but the reason I said "or worse than" is the risk of the collapse of the dollar. Such an event would destroy the medium of exchange most commonly used in commerce, doing harm over and above the harm done by deficit spending that otherwise would be no worse than taxation.

 

[WhoWee]

This is post 278 - accordingly, has anyone explained how an increased tax rate will lure the $Trillions of investment capital out of offshore exchanges and derivatives back into US based property, plant, and equipment (jobs)?

 

[Char. Limit]

This is post 278 - accordingly, has anyone explained how an increased tax rate will lure the $Trillions of investment capital out of offshore exchanges and derivatives back into US based property, plant, and equipment (jobs)?

It won't. Nothing will. That money is gone and it ain't coming back. The fact is, unless we lower the minimum wage about... six dollars per hour, we are not getting those jobs back.

 

[WhoWee]

It won't. Nothing will. That money is gone and it ain't coming back. The fact is, unless we lower the minimum wage about... six dollars per hour, we are not getting those jobs back.

Wages are subject to the market forces of supply and demand - unless regulated by Government or locked-in by a union agreement or employment contract. The best way to increase wages for everyone is to reach full employment - where employees are in demand and can name their price. Politicians don't seem to understand this concept - IMO.

 

[Char. Limit]

Wages are subject to the market forces of supply and demand - unless regulated by Government or locked-in by a union agreement or employment contract. The best way to increase wages for everyone is to reach full employment - where employees are in demand and can name their price. Politicians don't seem to understand this concept - IMO.

In August 24, 2005, an http://money.cnn.com/2005/08/23/news/international/india_outsourcing/index.htm" made about $1.22 per hour. Now, it might have risen since then, but I doubt it's more than doubled. Consider that the federal minimum wage is $7.25 per hour. How can we compete with cheap Indian labor? Answer: By lowering the minimum wage by about 5 dollars per hour.

And that would cripple America, since lowering wages that much would mean a large amount of people just couldn't buy anything, which means that a lot of companies would collapse because there's no one to buy anything from them.

tl;dr we're doomed.

 

[WhoWee]

In August 24, 2005, an http://money.cnn.com/2005/08/23/news/international/india_outsourcing/index.htm" made about $1.22 per hour. Now, it might have risen since then, but I doubt it's more than doubled. Consider that the federal minimum wage is $7.25 per hour. How can we compete with cheap Indian labor? Answer: By lowering the minimum wage by about 5 dollars per hour.

And that would cripple America, since lowering wages that much would mean a large amount of people just couldn't buy anything, which means that a lot of companies would collapse because there's no one to buy anything from them.

tl;dr we're doomed.

While it's true a TM job can be outsourced to India, there are millions of retail/service jobs that can't be exported. As for manufacturing jobs, technology replaces the $1.22 per hour folks - and the machines are monitored and services by higher paid and skilled workers - an "economic sweet spot" (my term) - IMO.

 

[mheslep]

The minimum wage, i.e. government, eliminates the $1.22 per hour folks, not technology.

 

[Char. Limit]

The minimum wage, i.e. government, eliminates the $1.22 per hour folks, not technology.

I think you missed part of my point, which was that a $1.22 per hour wage is simply not sustainable in this economy. I mean, that's essentially $200 a month. Which we all know won't sustain one person even as a bare minimum.

 

[mheslep]

I think you missed part of my point, which was that a $1.22 per hour wage is simply not sustainable in this economy. I mean, that's essentially $200 a month. Which we all know won't sustain one person even as a bare minimum.

Though I once traveled around W. Europe for months on a budget of about $200/month, wages that low are not meant to sustain someone. They're useful to get someone with zero marketable skills in the door, where they better quickly learn some skills, and thus become worth a higher wage. And the price structure is not static. It tends to bend and evolve to accommodate varying incomes. The https://www.amazon.com/dp/080188571X/?tag=pfamazon01-20; that doesn't mean it can't.

 

[SixNein]

No, it won't. Why do so many people think massive, expensive, ever-growing government is the only option?

I don't recall saying anything about the size of government. In fact, I think the imbalance argument would be true for all governments regardless of size. In addition, I don't gauge government by some notion of large or small because I feel that size is according to the economy and global status of a country; instead, I gauge government by efficiency and how well it meets the needs of its people.

I agree with you that government spending on credit is just as bad as (or worse than) government spending from taxation, but what those two bad options have in common is the problem: too much government spending.

The need to raise taxes does not necessary imply that the government is overspending. For example, a great deal of Americans believed that the government should go to war after the sept 11th attacks in order to protect their security. Unfortunately, war is a very expensive endeavour for the government to undertake, and the government had to adjust its finances accordingly. People could have paid taxes immediately, or the government could borrow funds and raise taxes to cover those funds and interest at a future date. The only other option is to forgo those needs regardless of the long term cost.

 

[Al68]

I don't recall saying anything about the size of government...

Sure you did. You said: "...lowering the taxes will introduce a cash flow imbalance, and the government will be forced to provide a portion of its services on credit plus interest." That statement implies a government that spends at least as much as its tax revenues, which for the modern federal government means roughly 18% of GDP in addition to state and local taxation and spending. Your statement falsely claimed that the federal government has no option other than to collect enough revenue to pay for whatever spending it wants, or to obtain credit to do the same. Which means exactly what I said: that such a statement rejects not having such a large government as an option.

The need to raise taxes does not necessary imply that the government is overspending.

I never said anything like that. First, my claim of overspending was based on the amount of spending, roughly 25% of GDP last year by the federal government alone.

Second, I never referred to a need to raise taxes, anyway, because that's the last thing we need. The fact that government spends more than its tax revenues does not imply the need to raise taxes. Given the historical fact that federal tax revenues historically top out at about 19.5 % of GDP regardless of tax rates (even when the top rate was 91%) does imply the need to spend less.

 

[SixNein]

Sure you did. You said: "...lowering the taxes will introduce a cash flow imbalance, and the government will be forced to provide a portion of its services on credit plus interest." That statement implies a government that spends at least as much as its tax revenues, which for the modern federal government means roughly 18% of GDP in addition to state and local taxation and spending. Your statement falsely claimed that the federal government has no option other than to collect enough revenue to pay for whatever spending it wants, or to obtain credit to do the same. Which means exactly what I said: that such a statement rejects not having such a large government as an option.I never said anything like that. First, my claim of overspending was based on the amount of spending, roughly 25% of GDP last year by the federal government alone.

Second, I never referred to a need to raise taxes, anyway, because that's the last thing we need. The fact that government spends more than its tax revenues does not imply the need to raise taxes. Given the historical fact that federal tax revenues historically top out at about 19.5 % of GDP regardless of tax rates (even when the top rate was 91%) does imply the need to spend less.

You are introducing additional and unnecessary information into a very simple system I was trying to create. I left the assumption that spending is frozen before and after tax cuts unstated. If this clears this up for you, great; however, you may also be stuck on the inverse. Assume that taxes are frozen and spending goes up. Does this always lead to a better economy? I think most people can clearly see that this is false, but they seem to have more trouble with the inverse.

 

[Al68]

You are introducing additional and unnecessary information into a very simple system I was trying to create. I left the assumption that spending is frozen before and after tax cuts unstated. If this clears this up for you, great; however, you may also be stuck on the inverse. Assume that taxes are frozen and spending goes up. Does this always lead to a better economy? I think most people can clearly see that this is false, but they seem to have more trouble with the inverse.

None of that was ever unclear. My post was only in response to your claim that lower tax rates "forced" government to run a deficit.

 

[mege]

You are introducing additional and unnecessary information into a very simple system I was trying to create. I left the assumption that spending is frozen before and after tax cuts unstated. If this clears this up for you, great; however, you may also be stuck on the inverse. Assume that taxes are frozen and spending goes up. Does this always lead to a better economy? I think most people can clearly see that this is false, but they seem to have more trouble with the inverse.

Spend less, spend smarter - I think it's much of the same in this debate.

If our total federal spending has always been 18% - what are we spending money on now that we didn't 50 years ago?

Pre-President Johnson, taxes were going towards assets for the country. Roads, dams, NASA (for better or worse), other infrastructure, etc. Now much of the government spending is pigeon holed on little pet projects that only affect a small portion of the electorate - I think that's the ultimate real problem. If the overall tax rate in the country was a consistent 50% and it was all going to public works on projects of a truly national interest: I don't think there would be much backlash. But a small tax where it's going to individuals in redistributive measures (ala entitlement programs)? That's where I have a problem (and I feel many other's do to). Subsidies, permanent poor assistance and special-interest funding is what's driving us in the hole. 50 years ago the federal government wasn't funding several million mouths permanently on welfare, giving rediculous ammounts to minority farmers, billions to ethanol, or 100millions to Planned Parenthood. There's also a good chunk of political groups whom aren't paying taxes now - 501c3 needs to be charitable only. (MoveOn.org and the UAW are not charities... why are treated like one in the tax code?)

 

[Vanadium 50]

And that would cripple America, since lowering wages that much would mean a large amount of people just couldn't buy anything

Why does this follow? http://www.bls.gov/cps/minwage2009.htm", 97% of US workers are paid above the minimum wage. To first order, these people should be completely unaffected. I will concede there is a second order effect - e.g. a job that is presently being done by one person at $10/hr could turn into two jobs at $5/hour. So you would see wages fall and employment rise.

Also, lowering the minimum wage would be deflationary. Deflation has its own problems, to be sure, but one positive in this scenario is that the buying power of this $5/hour will increase.

 

[OmCheeto]

...97% of US workers are paid above the minimum wage.

So the people I pointed out the other day:

23,767,000 filers, or 14.7% if the total filers, had an average income of $5788 , with a negative tax burden of $51.

which by my calculations, came out to about $2.78 per hour for a 40 hour week, working 52 weeks a year, kind of implies the 14.7% of the US population are not working full time.

...

Which is kind of my response to the whole; "Half of America don't pay no tax!" argument.

Either they are really scraping, or they are just a Char-limit kind of person just trying to make enough money to eat while they get through college.

...

Last thought before I go to bed; "Who in America can afford to pay more taxes?"

answer: Rich people.

rich people: = me
not monetarily mind you, I would be on a yacht somewhere if that were the case.

 

[SixNein]

Spend less, spend smarter - I think it's much of the same in this debate.

I would also include tax smarter. In particular, the very high inequality in the nation should be discouraged through taxation. The one real change in America since post WW2 is a return to the gilded age.

 

[Char. Limit]

I would also include tax smarter. In particular, the very high inequality in the nation should be discouraged through taxation.

I disagree. I'm all for letting the wealthy be wealthy. I just think that the income tax is constitutional (it's in the constitution, after all). And for some reason, half of the board thinks that the income tax is unconstitutional.

The one real change in America since post WW2 is a return to the gilded age.

Hardly.

 

[SixNein]

Last thought before I go to bed; "Who in America can afford to pay more taxes?"

answer: Rich people.

Tax the red line...

[PLAIN]http://www.cbpp.org/images/cms//6-25-10inc-f1.jpg

 

[WhoWee]

Tax the red line...

[PLAIN]http://www.cbpp.org/images/cms//6-25-10inc-f1.jpg[/QUOTE]

The American Dream used to be inclusion on the "Red Line" - now it seems to be something less?

Personally speaking, the past 18 months have been horrible - if tax rates increase - I'm going to be less inclined to hire anyone or risk additional capital in the future.

 

[OmCheeto]

Tax the red line...

[PLAIN]http://www.cbpp.org/images/cms//6-25-10inc-f1.jpg[/QUOTE]

Ha ha!

Sorry. I got out of bed to do some business and couldn't help but see what thoughts had come out of the night.

Much of what I see in the people that surround me, is sort of what I would call a "Santa Claus" syndrome; "I'm really poor, but I want to be rich, and I know I will be rich some day. And when I'm rich, I can give my money to people and causes that I think are worthy of my benevolence. So screw this tax stuff. It's double taxation!"

It's quite possible that this is why I never became financially successful in life. I simply do not understand humans.

 

[mege]

Something to note - that graph does NOT indicate that the 'red line' is making more money from their jobs or investments (like some would like you to believe). Their take home is higher, sure, but does not indicate their income pre-tax has gone up. One presumption could be made that they are being taxed less (which I think is more of the case).

The marginal income tax rate for MFJ earnings over 250k in 1980 was 70%. Now it's 1/2 that (the MFJ top bracket in 2010 was 33% for 202k+, 35% for ~360k+).

I forget if I've stated it on this forum, but I'm all in favor of a simplification of the tax code to have two tax rates: under and over poverty (or some multiplier of poverty). Eliminate nearly every tax break, tax credit etc, except for very specific and necessary things that could cause significant double taxation (set a threshold of 1% of income or something). Ultimately, 'filing a tax return' should only be necessary if you have some change in tax circumstances - otherwise doing it automatically via payroll deductions should be fine for most Americans. Just as taxes shouldn't be used for punative purposes towards those whom make a lot of money, they shouldn't be used as rewards for performing certains deeds or tasks (buying a house, having kids, etc).

 

[Al68]

I disagree. I'm all for letting the wealthy be wealthy. I just think that the income tax is constitutional (it's in the constitution, after all). And for some reason, half of the board thinks that the income tax is unconstitutional.

Which half? can you link the posts? I'm a regular PF forum reader, and I don't remember ever seeing a single post saying that.

 

[Al68]

Much of what I see in the people that surround me, is sort of what I would call a "Santa Claus" syndrome; "I'm really poor, but I want to be rich, and I know I will be rich some day. And when I'm rich, I can give my money to people and causes that I think are worthy of my benevolence. So screw this tax stuff. It's double taxation!"

It's quite possible that this is why I never became financially successful in life. I simply do not understand humans.

I have to agree with you for once. You at least don't understand the humans who disagree with you, if you think that "Santa Clause" syndrome is accurate.