The Hill - Democrats can't agree over killing or saving the Bush-era tax cuts

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The Hill - Democrats can't agree over killing or saving the Bush-era tax cuts

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Started 2 years ago by BG
Latest reply from gramarye

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Bear
The woods
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gramarye wrote >>
I think that the economy grew in the 1950s notwithstanding the top tier marginal tax rates because the rest of the world was still recovering from WWII; we had the majority of the world's manufacturing capacity, logistical capacity, etc., and half the world's population was effectively taken out of the picture by the Iron Curtain, Communist China, Indian post-colonial isolationism (and flirtations with socialism), and so on.

Maybe, but then there are the 1960s. And the test cases for low top-tier marginal tax rates would seem to be the late 1920s, the late 1980s/early 1990s, and the mid-2000s to the present day -- and with friends like those....

Like I wrote, GDP growth fluctuates for lots of reasons. But the clear-cut "taxing the rich kills growth" claim just doesn't jump out of the aggregate numbers, over time, at all.

Posted 2 years ago #
gramarye
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Bear wrote >>

gramarye wrote >>
I think that the economy grew in the 1950s notwithstanding the top tier marginal tax rates because the rest of the world was still recovering from WWII; we had the majority of the world's manufacturing capacity, logistical capacity, etc., and half the world's population was effectively taken out of the picture by the Iron Curtain, Communist China, Indian post-colonial isolationism (and flirtations with socialism), and so on.

Maybe, but then there are the 1960s. And the test cases for low top-tier marginal tax rates would seem to be the late 1920s, the late 1980s/early 1990s, and the mid-2000s to the present day -- and with friends like those....
Like I wrote, GDP growth fluctuates for lots of reasons. But the clear-cut "taxing the rich kills growth" claim just doesn't jump out of the aggregate numbers, over time, at all.

The top marginal tax rates went *down* at the start of the 1960s; Kennedy cut the taxes on the top end. Granted, they were still in the 70% range, but that was a heck of a change from 90%, and it's the vector that's important. If they had been increased from 50% to 70% instead, I imagine the effect on growth would have been different (because prior growth would have been higher).

Posted 2 years ago #
hugh59
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Well said, gramarye. There is a range of tax rates where you will collect the most revenue. High enough to get a lot of money but not so high that the taxpayer benefits from aggressive tax planning. That planning gets your effective top rate down to about 20% (though the taxpayer sacrifices the freedom to use the resulting income and is locked into that tax shelter/investment). All things being equal, the vast majority of high income taxpayers would gladly pay a 30% rate and have free use of the capital rather than use a tax shelter and pay a 20% rate.

Posted 2 years ago #
Bear
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So the takeaway point is that overtaxing the rich depresses growth except after a war, except in the 1920s / late 1980s+early 1990s / mid-to-late 2000s, and except that it doesn't because it's actually the direction of change in marginal tax rates that's important, not absolute levels.

Have I got that all straight?

Posted 2 years ago #
pedex

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Bear wrote >>
So the takeaway point is that overtaxing the rich depresses growth except after a war, except in the 1920s / late 1980s+early 1990s / mid-to-late 2000s, and except that it doesn't because it's actually the direction of change in marginal tax rates that's important, not absolute levels.
Have I got that all straight?

http://en.wikipedia.org/wiki/Laffer_curve

it's called the laffer curve

and despite what many Reaganites would have you believe the actual effect of tax rates in the US system on tax revenue and economic growth or activity is pretty small

like I posted earlier, if you do not believe it look it up, the aggregate tax revenue collected vs GDP has changed very little despite massive amounts of monkeying with the tax code over almost 9 decades now

people get all caught up in the typical correlation vs correlation error and use the classic post hoc ergo propter hoc fallacy and take but a small peek at one or two variables and conclude "gee, look we lowered tax rates and the economy grew and tax revenue grew with it" while ignoring the other 100+ variables and circumstances they should look at first

most of the posts in this whole thread have literally been about quibbling about the margins

Posted 2 years ago #
pilsner

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Conservative plan for the budget deficit:

1. Keep the Bush tax cuts for rich people.

2. Repeal the Estate tax for multi-millionaires and billionaires.

3. Pull the plug on Grandma's Social Security.

4. Start another disasterous, costly war by bombing Iran this time.

Posted 2 years ago #
gramarye
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pilsner wrote >>
Conservative plan for the budget deficit:
1. Keep the Bush tax cuts for rich people.
2. Repeal the Estate tax for multi-millionaires and billionaires.
3. Pull the plug on Grandma's Social Security.
4. Start another disasterous, costly war by bombing Iran this time.

1. No.

2. No.

3. No. Be gender-neutral and pull it on Grandpa's, too. (Or, more accurately, phase it out over time.)

4. Wars aren't meant to be clean and cheap. If diplomatic options fail vis-a-vis Iran, then we have to decide if we can live with an Iran with nuclear weapons (and well-known ties to jihadi groups), or if we want to incur the cost of stopping it.

Posted 2 years ago #
gramarye
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Bear wrote >>
So the takeaway point is that overtaxing the rich depresses growth except after a war, except in the 1920s / late 1980s+early 1990s / mid-to-late 2000s, and except that it doesn't because it's actually the direction of change in marginal tax rates that's important, not absolute levels.
Have I got that all straight?

No. Neither in the 20s, late 80s/early 90s, nor mid-to-late 2000s were the wealthy really overtaxed. The fact that excessive taxation depresses growth does not mean that it is the only thing that can depress growth. It's just one thing that can.

However, you are correct that confiscatory marginal income tax rates on the wealthy are more sustainable when the wealthy have nowhere to flee, e.g., when half the world is communist and 75% of the rest is in smoking ruins. I do not propose that we glass the vast majority of the planet in order to reduce the exit options of the American upper class, however.

You are also correct that the direction of change in tax rates matters, particularly when we're dealing with levels above the rates at which effects on behavior are minimal, as we discussed earlier in the thread. If my income goes from $150,000 to $100,000, it has a very different effect on my living standards and my happiness than if my income goes from $50,000 to $100,000.

Posted 2 years ago #
Bear
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MehÃ¢â‚¬â€you're both missing and making my point (impressively), which is that the relationship is far more convoluted and conditional than either left or right would have us believe. But it's irrelevant, since we've been in the wrong thread for a couple of days now.

Posted 2 years ago #
HeySquare
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Bear I keep wanted to quote your arguments in that thread, then have gotten confused because I haven't found them. Please keep up with the thread changes, please. Cross posting is often beyond my paltry computer skillz.

Posted 2 years ago #
gramarye
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Bear wrote >>
MehÃ¢â‚¬â€you're both missing and making my point (impressively), which is that the relationship is far more convoluted and conditional than either left or right would have us believe. But it's irrelevant, since we've been in the wrong thread for a couple of days now.

Heh. If that was your only point, then consider it conceded--with this catch.

Saying that something is "convoluted and conditional" is easy to prove but hard to make matter. If I were to tell any of my clients that, without more, they'd fire me--and justifiably so. If I were to tell a judge that, without more, I'd be benchslapped. If I were to tell a partner who gave me an assignment that, without more, the internal market for my work would rapidly shrivel.

Maybe I'm projecting too much of my own industry onto the vast universe of the Internet (and real life), but I don't think that judges, partners, and clients are all that different than ordinary voters in that regard. They don't want to be told that something is "complicated" and then have the person telling them that stop there. They want as complete an exposition of the governing rule as their attention spans will allow them to stomach. The second part is also important, because they don't have the time or inclination to deal with a dissertation's worth of nuance. They want the general rule, the major exceptions, and any salient signals to look out for that tell you that such exceptions might be present.

Posted 2 years ago #