Returning a bit to the topic of supply-side economics, there seems to be a general feeling among my progressive/liberal friends that the main reason America has such a hard time raising taxes to cover the new spending programs they want is that Republicans have been ceaselessly demonizing taxes for the last thirty years, while spreading vicious lies about supply-side economics that have instilled a new and pernicious tax hatred among American voters. This is basically the narrative of The Big Con: we used to have this terrific economy with low inequality and a growing government share of national income, with everyone except a few rich malcontents happy, then this giant Republican conspiracy to make us all hate taxes came along and lured us off the Yellow Brick Road and onto the Road to Perdition.
This seems an odd belief to hold in a nation that was basically founded in a tax revolt. A modestly comprehensive perusal of pre-1970 literature reveals that Americans seem to have hated taxes all along. And why wouldn't they? Taxes don't need any special conspiracy to make you hate them, at least if you are among the majority of people who would rather have more money in your pocket than less.
I think a better explanation for the shift in public sentiment about government spending that took place in the 1970's would point out two things: first, that the government in the late 1960's and early 1970's was doing a really spectacularly bad job of running the economy. Richard Nixon was probably the worst economic disaster as president since Andrew Jackson, and Lyndon Johnson and Gerald Ford weren't any particular prizes either. The economic history of the 1970's sowed very well justified fears about state intervention in the economy, and it's probably no coincidence that we're getting more support for government programs only as the memories of 40 years ago begin to fade.
But perhaps even more importantly, it's not clear that 1980-2007 are the anomalies in American public sentiment about taxes. On the contrary, I think I can make a better case that 1945-1970 was the oddity. While incomes were growing rapidly, and inflation wasn't, the American public was willing to accept a higher tax burden because even after taxes, they felt a lot richer. As soon as productivity growth slowed (and therefore growth in real incomes), people started to feel the pinch of a growing tax burden, particularly since inflation was pushing them into tax brackets originally meant for "the rich".
Supply side nonsense is nonsense, and I think it's a pretty good explanation of the budget deficits of the early 1980s. But I don't think it's a very good explanation of the generalized tendency of the American public to demand low spending and even lower taxes. As you'll see if you look at the historical data, America has run deficits most years since 1940, and really sizeable ones since the mid-1970s. The only reason the Bush deficits so dominate our current debt is that inflation has eroded the value of the earlier debts, not that he's unusually profligate.
To be fair to the lefties, their complaint isn't why don't voters like the idea of paying new taxes *themselves*, it's why don't voters like the idea of taxing the top 2-5% of Americans more, with the spoils to be divided between government workers and middle class families.
My intuition is that the connection between soaking the rich and the value that any individual will get from it is limited. If you said: "Let's cut the tax rate of the bottom 95% by 5% and raise the rate of the top 5% by 5," it would probably sell more than "Let's raise the top tax rates by a fair chunk, raise the middle by a little, which may or may not be offset by a series of targeted credits, and then spend the money on a bunch of programs, some of which will benefit you the voter."
Let's take J Mann's point further and, for discussion purposes, accept the notion that the ability of the bottom 51% to take an unlimited amount from the top 49% in a democracy is a *bad* thing as fact. Then the supply side myths and the public employee skim have the upside of making it less obvious to the bottom 51% that they should be ripping off the upper 49% more.
"...probably the worst economic disaster as president since Andrew Jackson"
AJ getting called out for Economic 'mismanagement'??
Care to expound MM?
That ol' Hickory is on the YFC (aka U$D 20) is the height of irony. Old boy was fighting off the renewal of the Second Bank(private) of the US.
"When Andrew Jackson vetoed the charter renewal of the Second Bank of the United States, for example, he argued for the severing of the grip on the economy of easterners and especially foreigners, who owned a significant stock interest in the bank. Ironically, by helping to create what was perceived to be an unstable currency, he set the stage for the later development of a full-fledged gold standard."
http://www.federalreserve.gov/boarddocs/speeches/1996/19961205.htm
That gold-standard set the stage for what is rightly remembered as "The Gilded Age".
AJ would be more akin to Volcker, in contemporary history.
Past that, wait until even more "progressives" get wrapped up in the AMT and taxed even more heavily on nominal gains caused by inflation, and we'll see how much more of their /treasure/ they're still interested in 'investing'.
Maybe we should remind ourselves of good Rev. W.J.H. Boetcker's enjoinders:
"You cannot bring about prosperity by discouraging thrift."
"You cannot help small men by tearing down big men."
"You cannot strengthen the weak by weakening the strong."
"You cannot lift the wage earner by pulling down the wage payer."
"You cannot help the poor man by destroying the rich."
"You cannot further the brotherhood of man by inciting class hatred."
"You cannot establish security on borrowed money."
"You cannot build character and courage by taking away men's initiative and independence."
"You cannot help men permanently by doing for them what they could and should do for themselves."
Progressive taxation is the tool of Tyrants & Misanthropes.
"Richard Nixon was probably the worst economic disaster as president since Andrew Jackson"
wow. you're being very generous to the architects of the great depression.
Andrew Jackson's economic policies are thought to have been a driving force behind the Panic of 1837, one of the worst recessions in history.
All good points. Another reason why antipathy to taxes runs high in the U.S.? No one trusts the U.S. Congress to spend taxpayer money wisely. Too many special interests feeding at the trough, too few shared national values and interests. Reagan ran successfully by referring to "waste, fraud and abuse" because almost everything the U.S. government spends seems like waste, fraud or abuse to someone.
In smaller, more homogeneous, and more genuinely democratic societies, people are less likely to be hostile to government spending because it's more likely to reflect their values and address their real needs. This actually works in the U.S., too, but at the level of local government. People who attend open town meetings in New England tend to feel differently about the way their local taxes are spent than they do about their federal taxes. What's causing the current dynamic is the rise of the U.S. as a centralized, imperial state in the post WW-II period. Which is why supply-side nonsense is even more nonsensical when spouted from the mouths of people who think we should have troops in Iraq for the next 50 years.
How is it again that small-government libertarians think GWB is their guy??
this: a snip "This panic was made worse by a number of factors: large debts incurred by states due to over-expansion of canals and the construction of railroads; an unfavorable balance of trade as imports exceeded exports, resulting in a loss of specie (gold and silver -- as opposed to paper currency) ; and several crop failures in 1835 and 1837. The major cause of the panic, however, was the economic impact of land speculation. It was a period of speculative mania.
After the demise of the Bank of the United States, state and wildcat banks grew rapidly during the 1830s. Funds were more easily available, and investors borrowed money at an incredible pace. Not only the small Western farmer, but merchants, manufacturers and traders also borrowed heavily. The business community, rather than paying off their debts and refinancing new ventures, anticipated greater returns if they invested their borrowed money in speculative enterprises -- investments that, they hoped, would greatly increase in value while they held them. Leading the list of speculative ventures were investments in the vast amounts of readily available cheap land."
http://www.landandfreedom.org/ushistory/us8.htm
almost sounds like 2007, though, it seems that the Panic had more to do with Fractional-reserve financing of Speculative activities than by AJ's own doings
Lured off the Yellow Brick Road? That happened quite some time ago. http://home.earthlink.net/~jcorbally/eng218/rcross.html
A good explanation of what the Yellow Brick Road represented.
What confuses lots of liberals is that of the nearly half of Americans who don't pay income taxes, many refuse to sign the "soak the rich" petition. Such liberals often complain that the poor don't vote their interest (with the typical assumption that their interests are what we tell them).
The reasons that people who pay no income tax don’t support overly soaking the rich are many. As pointed out above, the poor don't necessarily see the benefit when government sucks up money-- it goes to crony capitalists, to narrow special interest groups (public unions, the crime-industrial complex, etc). Second, as Megan said, we were born from a tax revolt, and it’s a one of those not too bad crimes- like being a flamboyant bank robber, or a treasonous confederate, or a torturer in an action movie.
I happen to think Americans are basically moral & fair. Some think fairness means its not OK to forcibly tax someone's earned income in order to transfer it to other people who don’t earn as much because, the theory goes, the poor haven’t poured in the effort, taken the risks or made the sacrifices. That view is not uncharitable, its clear-eyed— holding an hand out to the federal government is not equal to being deserving. When charity is a local affair, delivered face to face, it is easy to see the scofflaw and to see the deserving, but when the massive federal government vacuums and disgorges money willy nilly, there's no certainty its spend charitably. Previous commentators pointed out that smaller governing units might support high taxes).
The more radical among us will say that the 13th amendment prohibits slavery and spending 40% of your day at work for wages directed to the government is slavery.
I know that I'm fighting a losing battle here, but I'm going to fight nonetheless.
This story about our history being "founded in a tax revolt" is so deeply misleading that it borders on being outright false. I don't care how many times it gets repeated. Repetition won't make it true.
The tax revolt against which Americans rebelled was not based on a generalized hatred of taxes. It wasn't even based on a specific hatred of specific taxes. It was not "about" taxes at all. Let me explain...
Throughout the long history of the American colonies, the British raised and lowered taxes frequently, and in almost every case it provoked no organized response from the colonists. People did then what they still do today: they grumbled, did their best to avoid paying them, grumbled some more, paid them if they absolutely had to, grumbled some more, and then went about their lives. In virtually every case, new taxes didn't lead to the outbreak of a rebellion.
Until, that is, the British did something so egregious with their tax policy that the colonists could no longer stand it. That Stamp Tax that the colonists hated so much? Although there were certainly economic benefits to be had by the British, they weren't the reason they chose that specific tax. Not even close. The goal of the Stamp Act was political, not economic. It was designed to destroy newspapers and print shops across the colonies, because newspapers and print shops were being used to undermine British rule. The seeds of the rebellion pre-date the Stamp Tax by many, many years.
So why do we remember it as if the taxes were the thing? For those seeking greater independence from British rule, the new Stamp Tax was like a gift from God. Until that Act most newspaper editors, postmaster, and print shop owners had remained steadfastly neutral. They would allow anyone and everyone to print anything they desired, but they would rarely if ever comment directly on politics themselves. There were exceptions, of course - there always are, but when even Ben Franklin remained pledged to neutrality, you know something serious is going on.
The Stamp Tax threatened to put them all out of business by making paper so expensive that consumers could no longer afford to buy newspapers, and pamphleteers could no longer afford to print and distribute their ideas. The Stamp Tax was, in short, a tax aimed at curtailing political speech. It was a means to an end, a move that struck directly at the new philosophy and language of individual rights that had developed in the colonies over the past 100 years. The colonists didn't hate the tax simply because it was a tax. They hated this tax because it threatened their rights, rights they now believed had been given to them by God.
And for the postmasters and printshop owners it was actaully even worse. In most cities and towns, post offices and print shops had become important centers in their community. They were places people went to share information, a function that made their owners among the most important people in the town. For them, this tax didn't just threaten their rights and their livelihood, it threatened the entire basis of their social status as well.
But what about all that rhetoric of "taxation without representation?" Surely that demonstrates it was all about taxes, right? Again, no. That slogan really was just that: a slogan. Recognizing that they had been handed a PR coup, the opponents to British rule used their newfound alliance with editors and publishers to launch a new argument for resistance (and eventually revolt). But note the language here. It wasn't "no new taxes." It was "no taxation without representation." It was about political rights, not fiscal policy. Taxes were just one of the hooks they used to grab people's attention. It was the style of the argument, not its substance.
Consider as another example the Tea Tax. I don't care what your high school history book told you, that wasn't actually about taxes either. Like that Stamp Tax, it was a means to another end, but in this case, an economic one. The British were hoping to use the tax to interfere with colonial commerce, so they implemented it in a way that favored pro-British merchants over everyone else. This infuriated the colonists, but believe it or not most decided it was something they had no choice but to accept. In Boston, however, a small group of men had a different idea, and thus the Boston Tea Party Was born.
But notice what happened next: Most of the colonists, including those leading the movement against the British, were appalled by the attacks, and if memory serves, some - including Ben Franklin - offered to pay for the damage out of their own pockets. If the revolution had been about taxes the Tea Party would have been welcomed, but it almost uniformly was not.
So why do we remember what came next as an anti-tax revolt? Because thanks to an over-reaciton of world historic proportions by the British, a revolt was what came next. .
After news of the attacks reached England, Parliament responded with what became known in the colonies as The Intolerable Acts. The Acts were many things, but there is one thing they most certainly were not: taxes. There was the forced quartering of soldiers, the expansion of Quebec, the rigging of the judicial system even further against the colonists, the takeover of state and local governments in Massachusetts by royal governors - all actions that would become central to the revolution, the constitution, and the Bill of Rights - but no taxes. None.
So on a surface level I suppose you can in fact argue that the colonists revolted "over" taxes, but that argument is deeply misleading, and deliberately so. Today its McMegan, but tomorrow it will be someone else. Any time a conservative or libertarian wants to rail on about taxes, they trot out this myth out as evidence. "We're a tax hating nation, always have been, always will be. The revolution proves it!" The problem is that it actually does no such thing.
The colonists weren't opposed to taxes. They were fighting for rights, not against taxes. That the Boston Tea Party led to a revolution is a historical accident, and nothing more. Had it not been that it likely would have been something else, and there is certainly no guarantee that something would have been taxes. Because taxes weren't central to what the rebels were about. Not even close.
If you are going to use history to make your case, you need to look past slogans to find the deeper, more fundamental truths.
Alex:
I largely agree with you on the history, but all that history demonstrates is that as a nation we hate government intrusion. Higher taxes means a more intrusive government. They're two sides of the same coin.
(Warning: overly broad generalizations follow)
I think that's one of the major disconnects between liberals and conservatives. Liberals seem to think that the people generally want more government services and are just foolishly resisting the taxes necessary to pay for them. Conservatives (or at least liberterian leaning conservatives) don't want more government, and as such don't want to pay for it. Taxes are largely a symptom, not a cause.
The problem is that it's much easier for politicians to cut taxes (everybody likes tax cuts) than services (because services have their own constituency). So as a nation we engage in this kabuki dance over tax rates while avoiding the real and painful debate over the amount of government.
This is why I'd really like to see a balanced budget ammendment & tax payer bill of rights. It would force the government to reconcile taxing and spending.
The more radical among us will say that the 13th amendment prohibits slavery and spending 40% of your day at work for wages directed to the government is slavery.
If you're so incensed about your slave-status, Mr. Radical, why not do what real radicals do and revolt against the government? Strike a blow for liberty. Get a bunch of guns and pipe bombs and go on up to New Hampshire and join that couple who won't pay their federal taxes.
Oh, wait, you won't do that? Then you're no f---ing radical. You're just another libertarian crank posting comments on a blog. Join the club, there's lots of 'em here.
SG wrote: This is why I'd really like to see a balanced budget ammendment & tax payer bill of rights. It would force the government to reconcile taxing and spending.
Well, states are not allowed to run deficits, so if you want to see how that works in practice, all you need is a case study where a state has passed a Taxpayer Bill of Rights.
Here in Colorado, they called it TABOR for short, and voted it into an ammendment. Seemed like a sweet deal up through April 2003, since the state was no longer allowed to hoard any surplus and state income tax refunds got a whole lot bigger. Thereafter as the recession kicked in (and hit Colorado very hard since the Front Range corridor was the second-fastest growing tech region after Silicon Valley), we suddenly started losing government services left and right. Severe and inconvenient reductions took place in both staffing and customer service hours at most state agencies, and state funding to promote tourism was virtually cut off (with even 1-800-COLORADO going offline for a while).
So far they haven't figured out how to get a suitable quorum for overturning the amendment, but enough people have grown hostile that the most recent election cycle saw passage of a measure that essentially hangs a multi-year moratorium on it.
In short, be careful what you wish for -- not because fiscal responsibility is a bad thing, but because the strictest form of it leaves no wiggle room during a downturn.
anony-mouse:
I live in Colorado, and that experience was exactly what I had in mind. During that downturn you mention, I personally suffered a loss of income. And you know what? I had to cut back on my spending. Why should the government be be immune? And under what economic school of thought is raising taxes during a recession good public policy?
I'll admit that there's still a tendency for governments to cut the most publically visible (as opposed to the least important) services first in order to stress the point that they need more tax revenue, so it's still not ideal, but it's a serious step in the right direction.
I'm not fundamentally adverse to taxes, but the federal government all too frequently runs with no real connection between its revenue and spending levels. I want those two tied together and force politicans to make hard decisions. Surely there are some programs that can be cut, no?
Now, this being a blog comment, I'm eliding a lot of details and that's where the devil calls home. I wouldn't want a strictly balanced federal budget. Capital expenditures need to be debt financed, and I have no good idea on how to account for future entitlements but conceptually...
SG wrote: During that downturn you mention, I personally suffered a loss of income. And you know what? I had to cut back on my spending. Why should the government be be immune?
For the same reason individuals with savings should be less affected during a downturn: they can dip into the savings, then replenish them again during the next upturn.
The state isn't (or at least, shouldn't be) an entity that exists for its own sake; it serves the people it governs and taxes, and still needs to do so when the economy is slow. Viewing severe, across-the-board cutbacks in state services with a "poor baby, fewer steak dinners" attitude doesn't strike me as quite correct for that reason.
Most people don't need a big tax refund while the good times roll, and yet do need to continue relying on government services (some, perhaps even more than they did before) when the bear comes calling on the market. But the effect of Colorado TABOR was to get that exactly backwards.
Good point about cutting the most publicly visible services. Here in Minnesota one of the most common tactics by the school boards when they want to get an excess levy referendum passed (which are almost always on odd-numbered years like school board elections when the turnout is a fraction of that on even-numbered years) is to cut the popular programs like busing, sports, music, the library, etc. while pleading poverty. Then of course if/when the referendum is passed, something like 80 plus percent of the money raised just goes into wages and benefits for the school employees and very little goes back into the programs that just “had” to be cut. IMO it’s not going to stop until we either require by law that all elections occur on even-numbered years or parents just stand up the school boards and teacher’s unions that use their children as pawns/hostages to extort more and more money.
anony-mouse:
The problem is that governments don't typically save surpluses, they spend them. I don't actually fault legislatures for this, they get more votes from spending already collected tax revenues than they would from refunding them. But the fact remains that extra revenues don't get squirelled away for a rainy day.
I could support a system where, instead of refunds, the government was obligated to save those surpluses for a rainy day. I don't claim Colorado's TABOR law is perfect, only that it's preferable to the current federal practice.
I agree that the government (at any level) has certain obligations that need to be met, almost irrespective of the current economic climate. However, my view is that government (especially at the federal level) goes way beyond those minimal obligations. And government spending is sticky; once a program is enacted, it's well nigh impossible to stop it. Some system (and we can certainly debate on the details) that forces legislators to prioritize and make actual choices is desperately needed. Say what you want about TABOR, but the legislature was forced to make choices.
And the legislature also changed from Republican to Democratic control at least partially as a result of those choices. But turnover isn't such a bad thing. That's the reason why we won't ever see such a thing at the federal level. By forcing legislators to alienate one constituency or another, it's inherently an anti-incumbent system.
Anony-mouse: I understand what you are saying but wondering if Colorado actually had a history of maintaining a permanent "rainy day fund" where excess revenues were placed for use when the economy was bad and tax receipts inadequate.
In my experience with a few states, politicians talk a good game about this subject and then proceed to budget and spend assuming the excess will continue to be available for use year after year. California probably is the best example of that in recent years.
MM apparently attracts those who just like to hear themselves talk. The only really informative post in this whole mismatched sack is the one on the Stamp Tax? Did it affect anyone's comments?
No. The ones afterwards mostly take the form of --that's nice but let me now pontificate about MY prejudices.
People. It's good you want to think for yourself, but it's important to learn how. Actually listening can be quite helpful.
SG wrote: agree that the government (at any level) has certain obligations that need to be met, almost irrespective of the current economic climate. However, my view is that government (especially at the federal level) goes way beyond those minimal obligations. And government spending is sticky; once a program is enacted, it's well nigh impossible to stop it. Some system (and we can certainly debate on the details) that forces legislators to prioritize and make actual choices is desperately needed. Say what you want about TABOR, but the legislature was forced to make choices.
In fact, I mostly agree on those points. The odds on such measures actually getting passed in way that meaningfully affects federal spending habits, though, seem a bit long.
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tc125231: Since you recursively violated your own advice with a post dispensing such advice, expect lots of laughter.
SG & Anony-mouse, I also live in Colorado - the People's Republic of Boulder, no less. The big problem with TABOR was not just its limits on taxes relative to inflation, but a contradictory amendment that mandated growth in education spending equal to inflation, so the state was stuck in a damned-if-you-do, damned-if-you-don't-situation: a constitutional crisis, which is why it had to be solved via statewide ballot.
Also, earlier in the thread someone said:
The reasons that people who pay no income tax don’t support overly soaking the rich are many
IMO (and that of most politicians) it doesn't really matter what the poor think. What matters is whether they vote, and the poor disproportionally don't.
anony-mouse:
I agree with you on the low likelihood of any such thing happening at the federal level.
On a slight tangent (and with all due apologies to tcl25231 if it's not sufficiently relevant to him/her), do you think the cutback in state services would have been better or worse if TABOR had not been in effect during the good years?
It's my position that the cutbacks would have been worse (defined as a percentage of previous year's spending) because, absent TABOR, the surplus would have been been turned into increased spending, making the fall off from the good years all the worse.
If you accept that argument, the problem in Colorado was not due to TABOR but rather to the balanced budget requirement. Maybe that's a solution: allow the government to run a deficit up to that year's TABOR limits in the case of a tax shortfall and require all existing debt to be retired before future surpluses will be refunded.
This seems an odd belief to hold in a nation that was basically founded in a tax revolt.
You're referring to France, right? Or did you mean India?
Most places have had tax revolts, but calling them "part of the national character" is to some extent an arbitrary move we make when those places also have a strong current anti-tax movement, which some do and some...don't (see France). Granted that an opposition to taxes has often formed a part of a deep anti-authoritarian streak in the US, there are a lot of other things that have historically formed part of the American character, but of which we've gradually attempted to divest ourselves as part of the challenge of modernization. You mischaracterize the views of liberals when you imagine that we think opposition to taxes arose magically from the mind of Hayek and was seeded to the people by his prophet Goldwater. What we think is that taxes are an issue that was largely being treated rationally in the US from the Progressive era until the 1970s, handled mainly as an economic and fairness issue of how to provide for a government that did the things voters wanted it to do (and economists agreed it should do; see Highway System, Federal). Then, as the conservative movement took hold, taxes gradually became the focus of magical thinking promoted by people who can legitimately be called con artists.
Seems to me most politician-promised government programs can be used to support the "con artist" appellation. Great Society, war on drugs, war on poverty, school spending, teacher salaries, etc. etc.
Partisanship is the amazing discovery that only the other guys are full of s**t, while your team is well-intentioned and their wonderful ideas were simply derailed by some poorly-behaved, evil other.
The whole thread started by the Con is a Con. I'm sure I could build a case it was perpetrated by an evil conspiracy as well.
The problem with Alex's post is that it supposes that taxation as a means of attacking one's political opponents was something peculiar to colonial North America. Why do you think the Federal Tax code is the complex monstrosity it is? Because factions, such as homeowners or non-poor retirees, for instance, endlessly labor to have opposing factions, such as young workers or renters, pay for government, instead of themselves. Many people sense this, that the tax code is merely a means by which some citizens attempt to get over on other citizens, and behave accordingly.
Brooksfoe, anyone who would call the tax code of, say, 1961, an expression of rational thought, has, well, a unique view of the term "rational", unless one merely means to say that it was entirely rational for factions to ruthlessly pursue their self interest when they petitioned a tax law-writing Congress.
I beg to differ, Megan. I think the reason Mr. Bush's horrendous spending spree is so up front in our minds, is the absolute magnitude of his profligate ways. I don't even have to take a hand out of my pocket to count on my digits the number of spending bills he has vetoed.
No, I believe that Bush is where he is for two reasons: his spending on everything while not instilling any discipline in the Republican ranks (especially pre-2006) on their 'let's write a check' approach to the country's budget.
His second problem is when he lost his base, and most of the rest of the country, when he fails to stand up to might Mexico and won't take stop the human tidal wave coming across, while Fox, et.al. thumbed their nose at us and said it didn't matter what, their people were coming across the border.
If France does not have "a strong current anti-tax movement", does that mean that (a) Frenchmen do not feel that they are overtaxed, or (b) Frenchmen know that any such movement is doomed to failure, because the political classes of all parties will make sure that it fails? I'm guessing the answer is more 'b' than 'a'.
Alex Whalen: "The colonists weren't opposed to taxes. They were fighting for rights, not against taxes.... Because taxes weren't central to what the rebels were about."
Your analysis contains, to my knowledge, no factual errors. However, it is IMHO a somewhat tendentious point of view, both because you can't say exactly which straw breaks a camel's back, and because its claims about motivation would tend to be rebutted by the nature of Shays' Rebellion and the Whiskey Rebellion of 1787 and 1794, the former rebellion about debt and taxes, and the latter rebellion just about taxes, in each case despite the existence of representation at state and national (under the Articles of Confederation in the first case, and the Constitution in the latter case) levels.
A point in MM's favor is the way the 16th Amendment was promoted. According to my grandfather, who was a teenager then, the pro-income tax folks argued that only wealthy people would ever need to pay an income tax and, besides, the tax would never be more than 1%.
Of course, neither of those two points appear in the text of the amendment, which is how we ended up -- entirely predictably -- where we are today.
In short, the American people would never have supported the 16th Amendment if their politicians hadn't lied to them.
Jackson more akin to Volker, not Jackson was more akin to Pol Pot
In addition to murder and forced resettlement, he pushed the economy backwards (most of the actual damage occured in Van Burne's tern, his unlucky vice-Prez)
Of all the psudo-populists liberals celebrate (THINK aRTHUR sCHLESINGER) jACKSON IS THE MOST REPULSIVE AND IS A GOOD EXAMPLE OF WAHT A TRUE POPULIST IDEOLOGUE CAN ACCOMPLISH
Jackson more akin to Volke? no Jackson was more akin to Pol Pot
In addition to murder and forced resettlement, he pushed the economy backwards (most of the actual damage occured in Van Buren's term, his unlucky vice-Prez)
Of all the psudo-populists liberals celebrate (THINK ARTHUR SCHLESINGER) jACKSON IS THE MOST REPULSIVE AND IS A GOOD EXAMPLE OF WAHT A TRUE POPULIST IDEOLOGUE CAN ACCOMPLISH
To many ( a little over half the House and Senate at least) cutting taxes to raise revenues is just impossible to comprehend. The following makes the explanation simple enough for almost anyone to understand. It explains how reducing tax rates increases tax revenues, reduces wealth concentration, improves family life, improves the entrepreneurial climate and lowers demand for government social services. The key to the explanation is the reciprocal curve of the tax revenue curve, the size of economy curve above the Laffer curve. This curve is derived from dividing the tax revenue by the tax rate to get the size of the tax base. Graphs make the effects of raising taxes on the size of the economy clear.
If the tax rate on Monday was 100% and the tax rate on Tuesday was 10% would you report for work on Monday? Would you work harder on Tuesday? What tax rate would make you show up for work on Wednesday, Thursday and Friday? Will your tax rate at which you are willing to work be the same as everyone else's? If you would stay home Monday and would go to work on Tuesday you understand Supply side economics.
Supply side economics says tax revenues increase when tax rates go down. How does this happen? It happens because high tax rates cause a decrease in economic activity. Rewards for taking business risks are lower under high tax rates. Lower tax rates stimulate economic activity. Rewards for taking business risks are higher when tax rates are lower.
This concept can be demonstrated graphically. The basic concept is taken from the Laffer curve. The horizontal axis is tax rate, zero to one hundred percent and the vertical axis is tax revenues. Tax revenues are derived from the tax rate times the tax base. At zero tax rate tax revenues are zero. At 100 percent tax rate tax revenues are again zero. No one can afford to go to work if all their compensation is forfeited to taxes. There is no economic activity to tax, so no tax receipts.
However we do have a point where we have tax revenue and a tax rate greater than zero and less than 100%. So the question is what is the shape of the curve that connects the three points? For the sake of the illustration assume the current tax rate is about 30% and the revenues are about 1/4 the height of the vertical axis. There are three possible basic revenue curve shapes, depending on the slope of the line through this non zero revenue point. The slope can be positive, negative or zero. Proponents of raising tax rates to increase tax revenues say the slope is positive, proponents of supply side economics say the slope is negative. Few make a case the slope is at zero.
What does real world experience reveal of the true shape of the revenue curve? Empirically tax rate reductions have yielded growing economies, In the 1920's low tax rates stimulated the economy. In the depths of the 1930’s depression tax rate increases to 99% on incomes greater than $60,000 increased the unemployment rate from 25% to 35%. In the early 1960’s John Kennedy stimulated economic growth with tax rate cuts. Gerald Ford lowered tax rates and the stock market boomed. In the 1980’s Ronald Reagan lowered tax rates from previous levels and the economy again boomed. George H. W. Bush raised tax rates and was rewarded with a recession that cost him his reelection. In the 1990’s Republicans forced Bill Clinton to reduce tax rates on capital gains and the economy boomed again. (note that income will be taken at the lowest tax rate possible) George W. Bush inherited a recession and pushed for tax rate decreases that have pulled a 9-11 shocked economy back into growth. Tax receipts have recently reached record levels, and in some recent months even exceeded expenditures. And we are enjoying one of the longest expansions in recent history. These examples suggest that the correct shape of the curve is negative slope at our current tax rate.
Examples can be seen in other countries, low flat tax rate Estonia is booming after suffering decades under Soviet communism. Ireland has gone from being the poorest country in Western Europe (with a high tax rate) to one of the richest (with a low tax rate) Why? low tax rates have attracted investment. Russia itself has seen tax revenues jump after implementing a low rate flat tax after high tax rates failed to provide revenues. Many other countries from the former Eastern block have implemented low flat taxes and these countries economies are showing far better growth than the Western Europe high tax rate economies that are mired in low growth and high unemployment. In 2006 is was pointed out the US had created over 50 million new jobs since the 1980's (when tax rates were lowered) where high tax rate (and larger population) Western Europe has created only 4 million new jobs, and most of these are government jobs.
The following graphs show the three slope possibilities at a tax rate of 30%, with the added reciprocal curve above the revenue curve being the size of the tax base, ie the size of the economy. Note that with all slope scenarios the slope of the economy is negative, that is, the higher the tax rate the less economic activity there is to tax.
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What does this decreasing size of economy with increased tax rates mean to you? It means little or no job creation, and certainly lower overall employment. There must be economic activity to have jobs and the level of economic activity can be a good proxy for the number of jobs in the economy. The following graph uses the size of the economy as a proxy for the number of jobs.
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Compare the number of jobs in the economy with the size of the available workforce. The size of the available workforce remains basically constant independent of the number of jobs available. Where there are more available workers than available jobs, as under high tax rates, there is downward pressure on wages paid to workers. Where there are more jobs available than workers in the workforce employers must pay more to attract workers, wages are bid upwards. So, would you rather look for work under high tax rates or low tax rates?
Another overlooked effect of high tax rates is wealth concentration. High tax rates are said to be needed to tax from the rich and give to the poor to redistribute incomes. But high tax rates actually concentrate wealth. How? Under high tax rates jobs are few, workers plentiful, and compensation is low. The employer can pay far less than the value of the workers contributions and pocket the difference between the compensation paid and the value the worker generates for the employer. With large numbers of employees getting paid far less than the value of their contributions the employer can still profit greatly even if the tax rate is high, the net after taxes is still large.
Under low tax rates jobs are plentiful and employers must pay more to retain valuable employees. Because employers are forced to pay a higher percentage of the value of the employees’ contributions to the employee there is less wealth concentration. Wealth created by the business enterprise will be more evenly spread among the creators of the wealth. Employers will earn less from each employee, but will pay a lower personal tax rate and may not suffer as much damage to their net income as one might expect.
There are a variety of other effects of higher wages stimulated by low tax rates.
1. Capital investments will be made to increase productivity. Productivity increases correlate strongly with increased living standards. Productivity growth also moderates inflation.
2. Low paying jobs often lead to two income earner families which expands the active workforce. With each worker earning more, fewer families will need two income earners. More families will have a single income earner with a stay at home parent. This could have a cascade effect on the job market in that this will reduce the active labor force, potentially forcing wages even higher. And a stay at home parent usually means good things for children.
3. More jobs = less government assistance needed. With more jobs available, the whole of the work force that wants to work should be able to find a job, the chronically poor and last hired minorities could find a job. This should reduce the demands on a variety of governmental assistance programs, including unemployment programs, welfare, medicaid, social security.
4. Workers with more disposable income can accumulate wealth and join the investor class or start their own businesses.
So the big question is where are we on the tax curve now? Most certainly we are on a point on the negative slope and decreasing tax rates will increase revenues and increase the size of the economy. How far should tax rates be reduced? Should they be reduced to the zero slope point (the highest point on the revenue curve) on the curve? This would maximize revenue to the government, but this is not the point where standards of living would be the highest, or where the fewest people would require governmental assistance. The goal should not be to maximize government, but to maximize the standards of living for the population of the country. This would indicate lower tax rates, to the left of the zero slope point, where economic activity is highest are desired.
Dirk
"Examples can be seen in other countries, low flat tax rate Estonia is booming after suffering decades under Soviet communism. Ireland has gone from being the poorest country in Western Europe (with a high tax rate) to one of the richest (with a low tax rate) Why? low tax rates have attracted investment. Russia itself has seen tax revenues jump after implementing a low rate flat tax after high tax rates failed to provide revenues. Many other countries from the former Eastern block have implemented low flat taxes and these countries economies are showing far better growth than the Western Europe high tax rate economies that are mired in low growth and high unemployment. "
...
"The goal should not be to maximize government, but to maximize the standards of living for the population of the country."
Dirk,
Nice post.
Dirk, I'm glad you brought up the JFK tax cuts. Even Megan's small 1945-1970 window of toleration for high taxation isn't as big as she thought it was.
This is not surprising. The boomers believe all respectable American history began with their appearance in 1946.
Dirk:
If we stipulate that all that you say is true, then why would libertarian conservatives such as myself support lower marginal rates? If they lead to increased tax revenues, and thereby increase the size and power of the federal government, aren't they helping to feed the beast?
The corollary question would be why don't the Socialist Lite brigade (e.g., Hillary!) support lower marginal rates as a means of expanding the government?
I think part of the answer to my first question is that libertarian conservatives will accept growth in private wealth along with growth in federal size and power (if you accept that the latter equate roughly with growing tax receipts), both because they welcome a growing private sector and because the imbalance in relative strength isn't as great if both are growing as opposed to one growing and the other contracting.
The answer to the second could be that the leading politicians of the Democratic Party reject Dirk's analysis altogether and don't think that lowering marginal rates will expand tax revenues; that they begrudge private profit; that they prefer that the power balance shift to the government (more easily done with a weakened private sector); some combination of these; or something that I haven't considered.
I freely admit that I am much more receptive to Dirk's economic argument than I am with increasing marginal tax rates. However, if I accept his argument, I think I must also accept that one of the consequences is that I am contributing to the growth of the federal government. Do I have something wrong in my analysis?
Thank you for your comments. Pablo, what is missing in your analysis is the graphs that explain things better visually than I am able to in just words alone. Refer back to the Laffer curve at the point where revenues to the government are maximized is where the slope stops going up and starts going down. My position is we should be at tax rates to the left side of this maximum revenue point. On the left side of the revenue maximum point tax revenues decline with lower tax rates, but the economy grows, so job numbers grow, less welfare state is needed, more wealth is produced and enjoyed by those that created it.
If we are on the right side of the revenue maximun point, yes the tax revenues increase if tax rates are lowered, but the percent going to the government, and ideally being spent by the government decreases. Tax rate increases on the right side of the maximum point ( where I think we are now) will lower tax revenues because of less economic activity, ie fewer jobs. Fewer jobs means more welfare benefits necessary etc.
Again thanks for the interest and comments.
Dirk
How can FDR not get the tag as worst economic president ever? He extended the depression for 10 years longer than it should have lasted. He terrorized corporations and their investors such that there was a net reduction in investment capital in 1936. Investment still increased every year of the depression until FDR's campaign in 1936 scared the hell out of investors. This deepened the depression at a point when any normal economic policy would have cycled through to growth.
He even destroyed food supplies when people were hungry! How much worse can a president get?!!
He put in place many of the sclerotic govt bureaucracies that plague us today. His legacy even today burdens our children and grandchildren.
stan,
nice point(s). Though, let us not forget FDR's Executive Order 6102, discussed here:
http://www.lewrockwell.com/anderson/anderson154.html
Without which, his abilty to: "...put in place many of the sclerotic govt bureaucracies that plague us today. His legacy even today burdens our children and grandchildren." would have been greatly encumbered.
Many thanks to Alex Whelan for the well-argued response. When you say the colonists were fighting "for rights, not against taxes" I believe you set up a false dichotomy. It's no coincidence that so many libertarians today also value economic rights so highly. Many of us take our cue from those very colonists, specifically the founders.
As for taxation without representation, does anyone have any thoughts on when the continued taxing of future generations, who are obviously unrepresented, might spark some sort of revolt, however mild?
David,
If you look at the support, on college campuses, for a campaign like Ron Paul's, you may come to the conclusion the it's already beginning.
There are going to be some very interesting Political compromises to be made between the Baby Boomers & Gens. X&Y going forward.
see:
http://andrewsullivan.theatlantic.com/the_daily_dish/2007/06/underestimating.html
for starters, also:
www.ronpaul2008.com for campaign's website.
I'd just like to point out that the Laffer curve was written by somebody on a napkin, and that it has theoretical and practical applicability, its effectiveness diminishes in a country that already has relatively low taxes (US!) federal revenues and the GDP will not necessarily experience growth. Higher savings is important but only if that savings reaches private investment and is creating new jobs and services. The Wealthy do invest (and quite a bit) but they do not have to start a new company or come up with an innovative idea, they can spend it in a foreign country, or they could speculate for instance. One of the central problems of our system, and something which led to the 30's depression, is that it favors those who produce and already have the biggest chunk of the pie, while simultaneously depriving the majority of consumers with the wealth that purchases the products and services driving growth. The past cannot be changed, but a more equal distribution of wealth in the first place would create a far more entrepreneurial and stimulating economic climate. I don't claim any affiliation or particular propaganda, I think these issues generally escape the absoluteness and simplicity most slogans would like to promote.
Dirk:
Thanks for the reply. I understand what you are saying, but I still have these questions:
1) How can one tell on which side of the curve the country happens to be at any given time? You often say that you think we are on the right side of the curve. Empirically, lowering marginal rates will increase economic activity and increase tax revenues - if you are correct. However, given the politics and logistics of guessing where we are on the curve, altering the tax code (and who wants to make the argument that we are on the left side of the curve and that a tax increase is desirable?), and then waiting for feedback isn't a realistic approach.
2) Again, if the leftist view favors expansion of government, why wouldn't they support a protocol that leads to increased tax revenue? I gave some of my speculative answers in my original post, but I am not sure that I have it quite right. Again, if we are on the right side of the curve, then raising taxes will diminish revenue to the government as dependence on it increases. Is it the greater dependence, independent of the macroeconomic analysis, that is appealing?
Thanks again for your civil discourse.
I perused THE BIG CON over the weekend and the theme that seems to run through it seems to be: Pro-freedom/anti-statist=con man. Put me down as one of the "con men" then. Maybe Jim Powell should rename THE TRIUMPH OF LIBERTY, a collection of mini-biographies of people whose ideas, writings and actions have furthered the cause of liberty, TRIUMPH OF THE CON MEN.
I got a laugh out of one "Staat-shtupper" posting here who waxes nostalgic about a time when taxes were treated "more rationally." Ah, yes, the good old days, when the tax serfs knew their place. . . .
I would say that the belief that if you want to buy something, you need to raise the money to pay for it would qualify as "rational", while the belief that if you want to buy something, you should borrow the money to pay for it, in the hopes that someday money will shower down upon you to pay off your debts, is "irrational".
Pablo, thanks for your interest. 1. I do not know how to know in advance if a given tax rate change will result in an increase or decrease in revenue. I can only observe tax rate decreases have generally resulted in increased economic activity and tax revenue increases. And tax rate increases have often resulted in recessions and tax revenue declines. This suggests we are still on the negative slope of the tax revenue curve. If we cut tax rates until tax revenues declined that would indicate we had passed the zero slope point and were now on the left side of the curve. Then too remember the economy and tax revenues will not respond instantly to these tax changes, investments must be made, new businesses developed, the profits come later. An exception to this would be capital gains taxes, lowering the rate here makes it possible to take profits that were made years earlier.
2. As to why the left does not want to lower tax rates? I can only speculate. Yours guesses are as good as mine. I doubt they believe my analysis. One big problem, when our congress talks about about cutting or raising taxes they seldom differentiate between rates and revenues. They talk as if they are the same, raising rates automatically means raising revenues. Not so.
I think the value of what I wrote is the idea of the reciprocal curve to the Laffer curve. This visually shows the size of the tax base, ie the size of the economy. This curve starts off high on the left side, ie the low tax side and drops to zero at the 100% tax rate. Depending on the assumptions you make on the shape of the Laffer curve, this reciprocal curve can be concave, convex or a straight line. I like to think of this as a research tool for economic study. It could keep some economic graduate students busy determining its true shape. Sorry I cannot be of more help.
Dirk