91% tax rate in 1958 a myth

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Submitted by ctr70 on December 6, 2012 - 10:55pm

http://online.wsj.com/article/SB10001424...

Great article by Peter Schiff about the fantasy that the rich paid higher taxes in the 1950's. It was pretty much symbolic. Low & middle income earners actually paid a much higher share of overall taxes back then as they do now, the "so called rich" pay a higher share of taxes now than they did then. Some excerpts:

"Just 236 of the nation's 45.6 million tax filers had any income that was taxed at 81% or higher."

"It is a testament to the shallow nature of the national economic conversation that higher tax rates can be justified by reference to a fantasy—a 91% marginal rate that hardly any top earners paid."

"In reality, tax policies that diminish the incentives and capacities of innovators, business owners and investors will not spur economic improvement. Such policies will, however, satisfy the instincts of those who want to "stick it to the rich." Never mind that the rich have already been stuck fairly well."

Submitted by Daniel on December 6, 2012 - 11:46pm.

"Low & middle income earners actually paid a much higher share of overall taxes back then as they do now".

Of course they did. They also earned a far higher share of overall income than they do now.

This argument is such a ridiculous red herring. Quite a lot of chutzpah, too (for the uninitiated, it literally means killing your parents and then pleading the judge for mercy because you're an orphan). So, hey, my share of the pie is 10 times bigger than before, so I should pay tax rates 10 times lower than before so that we're all even, right?

It's not about "sticking it to the rich", it's about raising revenue. You go where the money is.

By the way, the same argument works for cuts, too. You go where the money is, and that's mostly Medicare.

To be honest, I think all the Bush cuts should just expire and forget the whole episode. After all, Bush sold them to us as being temporary, right? Wink, wink. So as not to increase the deficit? Wink, wink...

I remember the doomsday predictions from Kudlow and other clowns about the 1993 Clinton tax hike. Yeah, really destroyed the economy. Also, the enthusiasm for the Bush cuts of 2001-2003. Wow, that really worked out well.

PS: Schiff qualifies as a clown, too, just so you know.

Submitted by CA renter on December 7, 2012 - 4:42am.

Well said, Daniel.

As you've said: the wealth/income gap was much smaller then than it is now.

Want to "broaden the tax base" and "make more people pay"? Then reduce the income/wealth inequality and bring back the jobs that paid a living wage and provided benefits for the workers. That way, more people will be pushed up into the higher tax brackets. This isn't rocket science, folks.

Submitted by no_such_reality on December 7, 2012 - 7:33am.

Well, the reality when you look a California is we actually are spending $225 Billion a year.

Have you ever heard that number? Didn't think so.

It's the general fund, fed funds to the state, special funds and a very small amount of bond funds.

Yet we thrash around bickering over the 'general fund' and it being 90 or 100 billion and the reality is Cali is really spending $225 Billion a year. All that other money is strings attached or mandates.

Submitted by livinincali on December 7, 2012 - 8:45am.

CA renter wrote:
Well said, Daniel.

As you've said: the wealth/income gap was much smaller then than it is now.

Want to "broaden the tax base" and "make more people pay"? Then reduce the income/wealth inequality and bring back the jobs that paid a living wage and provided benefits for the workers. That way, more people will be pushed up into the higher tax brackets. This isn't rocket science, folks.

So let's see how the income gap has been going. The IRS data makes this really simple. So in 1986 total income was about 2.5 trillion and the top 1% made 285 billion of that. About 12.5% of total income. In 2008 total income was 8.4 trillion and the rich made 1.6 trillion of that so about 19% of total income now. If you straight line the average increase in wages (I didn't adjust for population) it's about 5% per year for everybody and 9.25% for the top 1%. If you assume the rich grew at the same rate as everybody else (i.e. take the 5% growth rate) you end up with a number that is about half of the current number I.e. 800 or so vs 1.6 trillion. Presume this gets distributed to the middle class and it's about a 10% increase in wages.

Even you assumed that you currently don't tax this money at all because the rich hide it from the irs and giving it to the middle class means you could tax it at 25% only gets you $200 billion in revenue. Of course these are wildly incorrect assumptions. The difference in tax rate for the rich vs the middle class might be more like 10% so you might get $80 billion more in revenue by putting this money into the middle class and broadening the base.

Submitted by CA renter on December 8, 2012 - 5:37pm.

livinincali wrote:
CA renter wrote:
Well said, Daniel.

As you've said: the wealth/income gap was much smaller then than it is now.

Want to "broaden the tax base" and "make more people pay"? Then reduce the income/wealth inequality and bring back the jobs that paid a living wage and provided benefits for the workers. That way, more people will be pushed up into the higher tax brackets. This isn't rocket science, folks.

So let's see how the income gap has been going. The IRS data makes this really simple. So in 1986 total income was about 2.5 trillion and the top 1% made 285 billion of that. About 12.5% of total income. In 2008 total income was 8.4 trillion and the rich made 1.6 trillion of that so about 19% of total income now. If you straight line the average increase in wages (I didn't adjust for population) it's about 5% per year for everybody and 9.25% for the top 1%. If you assume the rich grew at the same rate as everybody else (i.e. take the 5% growth rate) you end up with a number that is about half of the current number I.e. 800 or so vs 1.6 trillion. Presume this gets distributed to the middle class and it's about a 10% increase in wages.

Even you assumed that you currently don't tax this money at all because the rich hide it from the irs and giving it to the middle class means you could tax it at 25% only gets you $200 billion in revenue. Of course these are wildly incorrect assumptions. The difference in tax rate for the rich vs the middle class might be more like 10% so you might get $80 billion more in revenue by putting this money into the middle class and broadening the base.

Not only would you have more tax revenue, "the 99%" is more inclined to spend a greater share of their income rather than "invest" or speculate with it, or keep it in tax havens overseas. The income of the less-rich is also more likely to be spent in this country, so we could provide even more domestic jobs and grow our own economy vs. having the rich use that money to set up shop in China or speculate on asset prices which can push up prices for end consumers.

Each domestic transaction would be taxed, too, so the government would get revenues from corporate taxes and sales taxes, as well as income taxes.

The goal is to keep money in circulation without any debt offset. That can only be done if money is pushed down to those who are most likely to spend it or invest it in productive ways (not asset price speculation). The 1% have already proven that lower tax rates for the wealthiest Americans will NOT lead to more jobs or a stronger economy for the majority of Americans. Time to go to "Plan B."

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