TRB MARCH 19, 2013
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“There is a statue outside the Department of Labor,” David Brooks writes today in his New York Times column, "of a powerful, rambunctious horse being reined in by an extremely muscular man. This used to be a metaphor for liberalism. The horse was capitalism. The man was government, which was needed sometimes to restrain capitalism’s excesses."
This statue (“Man Controlling Trade”), which is located 1.7 miles from the Times’s Washington bureau, does not stand outside the Labor department. It stands outside the Federal Trade Commission. This error sets the tone for a column that argues we can’t raise taxes on high incomes without wrecking the economy. That’s false, too.
Brooks is appalled that the Congressional Progressive Caucus wants to raise the top tax rate all the way up to 49 percent. That’s one percentage point below the top rate in 1984, the year Ronald Reagan campaigned for re-election on the theme, “It’s morning again in America.” The 50 percent top marginal rate of 1984 kicked in at the equivalent, in today’s dollars, of $241,000. The Bolsheviks at the Congressional Progressive Caucus propose having it kick in at $1 billion. They would also like to tax capital gains as regular income, which Reagan did in the 1986 tax reform bill.
If we set taxes at these “astronomical levels,” Brooks says, “you really do begin to change behavior and wind up with a very different country.” But what we got starting in 1983 was a reviving economy that continued to expand, even after a stock market crash, until 1990.
That’s not the kind of “different” Brooks has in mind. In the 1950s, he writes, when taxes were low in Europe and high in the U.S., Europeans worked more hours per capita than Americans. But who cares how many hours people worked? In both places Gross Domestic Product boomed. What matters is productivity, which doesn’t measure how long you stay at work; it measures output per hour. During the 1981-2 recession, somebody (I forget who) took out a newspaper ad showing a crowded Grand Central Station. “If this many people are in Grand Central Station at 10:30 p.m.,” the ad said, “how come U.S. productivity is down?” Good question, I remember thinking. Throughout the 1950s productivity growth was brisk in both Europe and the U.S. (It was also brisk in the 1980s in the U.S. after the recession ended.)
Throughout the 1950s the top marginal income-tax rate in the U.S. was above 90 percent. “But the total tax burden was lower,” Brooks writes, “since so few people paid the top rate and there were so many ways to avoid it.” This is a red herring. By “tax burden” Brooks appears to mean the share of the nation’s income taxes paid by the wealthy, which is actually about the same today as it was in the 1950s. That reflects changes in income distribution (you may have heard incomes have become steadily more unequal since 1979) and the tax burden on lower incomes (reduced, largely at the instigation of conservatives).
The total federal tax burden was higher in the late 1950s if by “tax burden” you mean taxes paid not by the rich but by everybody. The average federal income-tax rate paid by a family of four was higher. That’s because in those days Americans actually paid for the government services they consumed. Today we borrow to pay for them. If we could raise the nation’s collective tax burden, restore the budget to solvency, and end up with the economy of the 1950s, that would be a pretty good deal.
What Brooks is trying to say, I think, is that in the 1950s the rich didn’t really pay a higher “effective tax” (i.e., a greater percentage of their income in taxes) than they do today. This is an untruth oft-repeated by conservatives in the hopes that they can convince you that raising the top marginal rate is at best futile and at worst economically destructive. But it is not futile; the rich really did end up paying more in taxes back in the 1950s.
I’m not saying that a top marginal rate of above 90 percent is optimal with respect to the larger economy. (The economists Peter Diamond and Emmanuel Saez say 70 percent would be better.) But it did squeeze more money out of wealthy people. But what about those loopholes? Actually, as a share of adjusted gross income, total deductions were lower in the 1950s than they are today, not higher. That’s why so many people are demanding tax reform today. But the lesson of the 1950s is that you can eliminate tax loopholes and raise rates well above their level today, and still end up with a healthier economy than the one we’ve got today.
That horse Brooks misidentifies is a pretty powerful beast. Yanking a bit more forcefully on its reins won’t weaken it, I promise. It may even strengthen it.
10 comments
The author writes: "But it is not futile; the rich really did end up paying more in taxes back in the 1950s."/// No data? How about this from Peter Schiff: In 1958, the top 3% of taxpayers earned 14.7% of all AGI and paid 29.2% of all income taxes. In 2010, the top 3% earned 27.2% of all AGI and paid 51% of all federal taxes.///The general theme from all the data I've seen: Tax rates were sky high back in the 1950s for the top 1%, but effective tax rates for all but top 0.01% were the same as today. And yes, a family of 4 today on average is paying much much less than they did back in the day.
- seattleeng
March 19, 2013 at 12:21pm
No citations?
- ReganaD
March 19, 2013 at 5:55pm
SHOW 1 RESPONSE
When Republicans and deficit hawks talk about a "spending problem" in America and how Obama has ballooned the deficits, they're dealing in falsehoods. As a percentage of GDP, Federal spending has dropped since 2009 and thanks to the plethora of generous spending cuts Obama had to hand over in order to get the GOP 'thumbs up' on the the fiscal cliff deal, the sequester deal and the debt ceiling deal, we are considerably closer to the $4T in spending cuts all the debt scolds seem to hem and haw about but fail to acknowledge. Witness the Ryan budget.________ When the GOP talk about spending, it is code for spending on things they want to eliminate because such programs like the FDA, EPA, CHIP, SS and Medicare are necessary, equitable, distributive and popular. The GOP just don't like to pay for those things. Ever._____ Talk about wanting a free lunch, when pressed to explain how they pay for these things they get mealy mouthed about eliminating tax loopholes and broadening the base and cutting spending. But cutting Medicare or food programs for the poor doesn't "pay" for them. Taxes do._______ The Progressive Caucus's budget is perhaps the most reasonable, equitable, common-sense budget proposal out there that no one, not the media, not Obama, no one....is talking about. And when the budget was presented with no party or think-tank name attached to it, a broad spectrum of voters (including 47% of teapartiers and self-identified Republicans) supported the budget. Maybe it isn't that the American public doesn't understand the issues or that we're not as conservative as the GOP bubble would like to think, it's that the DC beltway folks simply can't see beyond the edge of the circle-jerk they spend so much time in.
- singlspeed
March 19, 2013 at 12:29pm
The progressive caucus budget claims to cut taxes for most, raise taxes on a few, cut the military to 2006 levels and provide more services for all? Sorry, but the numbers don't add up. They are talking about an extra $45B a year in tax revenue. That is about half of what the Bush tax cuts on the wealthy delivered. Our problem is $1T a year shortfall. How does $45B a year in more revenue fix that? It doesn't. It doesn't even come close.
- seattleeng
March 19, 2013 at 2:35pm
Seattle, where are you getting $45B/yr? (I'm seeing numbers like $4.2T over 10 years.)
- Fishpeddler
March 19, 2013 at 4:23pm
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It's amusing to watch the two sides talk about the budget and the deficit. Both sides talk about tax rates, but the focus of almost all observers is on aggregates (spending and revenues). That's okay, but projecting aggregates in the future is dicey at best. What's not dicey are the marginal rates. The right side prefers not to focus on marginal rates, or to pretend that their rates will provide a "cut" since everybody likes a "cut". The left side also prefers not to focus on marginal rates, since their rates wouldn't be "cut" at all and nobody likes an "increase" or the label "tax and spend". Brooks, at least, has his focus on marginal rates, but in a rather myopic way. Today, someone earning the social security wage base (about $114,000) pays a marginal federal tax rate of about 46%, less than the marginal tax rate paid by millionaires or billionaires. Would it "change behavior" if millionaires and billionaires were subject to marginal rates at least as high as working Americans? I don't know, but Brooks seems to believe it would be unfair to millionaires and billionaires and would "change behavior" in a way that would result in a "very different country". I suppose he's right that it would be different, but different in a way that is opposite of what he suggests.
- rayward
March 19, 2013 at 4:55pm
The CPC Budget is also the ONLY budget that actually outlines proposals for dealing with the jobs deficit we have in this country. Fix that issue by investing in the longterm structural health of the country where we need to put the dollars, put folks back to work and get them on the pay-rolls paying taxes and the long-term spending deficit will drop._______ I suspect seattle is confused as to how we can cut defense spending and still provide services. The services are paid for by moving the defense spending monies over to the "services" side of the ledger. It' like when I stop paying for cable and spend the money saved on a health club membership instead of spending more money on cable and a fitness plan. The CPC budget also taxes investment and capital gains like income._____ There are other items in the CPC that are pretty reasonable and straight forward and certainly more realistic than the Ryan budget. http://grijalva.house.gov/uploads/Executive%20Summary%20FINAL.pdf
- singlspeed
March 19, 2013 at 6:06pm
The standard of living for everyone in my lifetime was never higher than it was in the Fifties. The American economy was booming, with full employment, even though taxes for the rich were at 90% (so much for that ridiculous GOP theory that higher taxes mean less jobs). The reason is beyond simple. We were manufacturing and buying almost all of the goods we consumed. The eventual flood of foreign goods was the beginning of the end for American prosperity. The only way we'll ever boom again is with bubbles, and we know what that leads to. BTW, the rich in America protested loudly when JFK proposed lowering their tax rates, because they reasoned that a healthy government was good for business (which it is). I know seattle will come back and say that there weren't millions of welfare bums in the Fifties, like there are today. True, but there are millions of 'bums' today who would like the rich, who are making more money than they ever have, to give them jobs. No chance there. The rich would rather continue to flood us with the foreign goods that they manufacture with low-tech, 10-cent-an-hour, Third World labor. Rich people were patriots in the Fifties. Today many of them are subversives.
- magboy47.
March 19, 2013 at 8:17pm
seattle continues to circulate the libertarian lie that the rich were somehow able to evade taxes in the 1950s and so could never be made to pay more taxes today. And, as usual, he cannot count. Leave aside the definitions of AGI, what is included and what sorts of income never make into the tax base -- a matter entirely of how the law is written. Leave aside that, invariably, seattle chooses some one fragment of time or income segment that he thinks proves his point. He cannot even discern the meaning of the numbers he cites. First of all, he says effective tax rates were the same then as now. But 29.2% divided by 14.7% is 2. 51% divided by 27.2% is 1.88. Thus, if you use seattle's numbers to calculate "effective tax rates," you do indeed find that the ratio of taxes to income was higher in the 50s than it is today. This, however, is a completely ridiculous way to calculate effective tax rates, makes no sense whatsoever. Because the tax rate is not the ratio income and tax shares. It is the ratio of taxes paid to income. Also, as ever, seattle says "all federal taxes," but is really only talking about income taxes, ignoring payroll taxes which are the taxes that most impact people up to and beyond the median income level. Withal, no one is talking about 90% marginal rates. Indeed, as I have pointed out time and again, we could make $100,000 the zero bracket, impose a 50% rate above that, so that only the top 10% paid any income taxes at all. Something like 95% of taxpayers would get a tax cut, we would balance the budget, and the top 10% would still have a higher net income share than they did in 1980 when Reagan rode into town. That is how skewed income has become. If you use seattle's method of comparing AGI shares to tax shares, the ratio was 2x for the top 3% in the 50s. Today, the top 10% has 50% of US GDP. So, it should pay 100% of the income taxes, which is exactly what would happen if we had two rates, 0 up to $100,000 and 50% above that. Finally, economic growth was much more robust in the period form 1940 to 1980 when the top 10% had only a 1/3 income share. The growth in income inequality is starving the economy of effective demand and thus inhibiting growth. The BEST thing we could do for the economy would be to raise income taxes on the top 10% and eliminate them for the 90% so that net income shares would more closely resemble those before we started our now 33-year experiment in voodoo economics -- seattle's libertarian economics.
- roidubouloi
March 20, 2013 at 12:14am
David Brooks remembers fine. He is a liar, a toady to plutocrats.
- roidubouloi
March 20, 2013 at 12:15am