A good study of the effects of taxation on US economy.
THE TRUTH ABOUT TAXES: History Suggests High Tax Rates On Rich People Do Not Hurt The Economy
The central issue of this year's
Presidential campaign will likely be the crappy economy.
Specifically, the candidates will argue about how best to fix our high unemployment and massive budget deficit.
And one of the biggest points in that argument will be taxes.
Specifically, what should be done with them.
Obviously, no one likes paying higher taxes, and everyone likes paying lower taxes.
But we live in the real world, not fantasy-land. And in the real world, sometimes people have to do things they would prefer not to do--such as pay taxes.
But the disagreement on this issue, as well as the facts surrounding it, is intense.
Democrats, to the extent they care about the budget deficit, want to raise taxes, which they say are too low--especially on rich people.
Republicans, meanwhile, generally say that taxes are too high and that the budget deficit should be addressed with spending cuts. To get the economy back on track, Republicans argue, you need to give Americans an incentive to work hard--by letting them keep more of what they earn. Republicans also argue that raising taxes would clobber an already fragile economy.
So who's right?
Are taxes too high? Or are they too low?
Do high tax rates on "rich people" create a lazy population in which no one has an incentive to work hard?
And what about the Republican mantra that cutting taxes is always good for the economy, while raising taxes is always bad?
Thanks to the Tax Foundation and other sources, we've analyzed tax rates over the past century, along with government revenue and spending over the same period.
This analysis revealed a lot of surprising conclusions, including the following:
- Today's government spending levels are indeed too high, at least relative to the average level of tax revenue the government has generated over the past 60 years. Unless Americans are willing to radically increase the amount of taxes they pay relative to GDP, government spending must eventually be cut.
- Today's income tax rates are strikingly low relative to the rates of the past century, especially for rich people. For most of the century, including some boom times, top-bracket income tax rates were much higher than they are today.
- Contrary to what Republicans would have you believe, super-high tax rates on rich people do not appear to hurt the economy or make people lazy: During the 1950s and early 1960s, the top bracket income tax rate was over 90%--and the economy, middle-class, and stock market boomed.
- Super-low tax rates on rich people also appear to be correlated with unsustainable sugar highs in the economy--brief, enjoyable booms followed by protracted busts. They also appear to be correlated with very high inequality. (For example, see the 1920s and now).
- Periods of very low tax rates have been followed by periods with very high tax rates, and vice versa. So history suggests that tax rates will soon start going up.