From 1944 to 1964, the top income tax bracket was more than 90 percent. Today, it’s about 40 percent. The corporate tax rate was more than 50 percent in the 1950s.

Those are marginal rates. It’s important to look at the effective rates, because they tell an entirely different story than the yarn you want to spin.

Let’s look at effective rates of taxation mapped against the marginal rates, before and after Mr. Reagan:

Image for post
Image for post
Source: Tax Foundation

What you should learn from that chart a couple of things. The first is that nobody paid those high marginal rates back in the day; they used financial engineering (which Reagan got rid of) to lower their AGI’s and thus their tax burdens. By 1988, we finally had marginal tax rates which were more representative of what was actually going to be paid — — something which economists on both sides of the political equation agreed was a good thing, even whilst they didn’t agree upon what the rates should be.

Today, because of loopholes and deductions, the effective rate corporations pay is 20–25 percent.

This leaves out an extremely important fact; most of those loopholes and deductions are only accessible to our megacorporations. So, the megas get to pay virtually nothing, while our small companies, the engine of job and economic growth in our nation historically, pay close to the actual rate of 31ish percent. If nothing else, that demonstrates what a huge problem we have with our tax code.

But wait! There’s more! Because that rate is so high in relation to other nations, and capital always flows to where it can be used the most efficiently, the rate creates an incentive for a multinational corporation to move departments and invest in new facilities overseas rather than in the US. That is….not good.

Republicans want to slash these rates even further, taking the top personal income rate down to 25 percent and the top corporate rate as low as 15 percent. This will remove an estimated $1.9 trillion from the federal budget, most of which will come out of Medicare, Medicaid, and other benefits programs. According to one estimate, 80 percent of the tax cut will go to the wealthiest 1 percent of Americans.

This is incorrect on so many levels one wonders what version of the Matrix you’re living in. Putting aside for a moment that you and I would agree that there’s no reason to mess with the top marginal rate (even though as you can see above it doesn’t have much to do with what people actually PAY, historically) NONE of that money comes out of Medicare or Medicaid. NONE. Those programs are funded through the payroll tax, not the federal income tax.

And, since the US only collects 9% of its revenues from the corporate income tax, this is not the drastic revenue loss you imply it is; in fact, if there’s a reshoring incentive for the cash balances held offshore, there may be no revenue loss at all.

In 1965, the average CEO made about 20 times more than the average worker; in 2013, CEOs made almost 300 times more.

Oh, who cares? That money doesn’t come out of the same bank account as the one they pay workers. CEO’s make a cash salary of a million a year; the rest comes from stock options that are paid for by the shareholders and nobody else. All you’re doing here is inciting class envy, since CEO comp is outside of the government’s ability to control.

Corporations make more profit now than at any other point in post-War history, even as real wages for workers have fallen. In 1982, the Forbes 400 were worth $93 billion; today, they are worth an estimated $2.4 trillion.

That’s correct. Those profits are the result of, more than any other thing, extremely low interest rates held down by the Fed, since we’re still recovering from the 2008 disaster. Those rates return to normal, those profits will come right back down.

The New Deal and state spending on the run-up to World War II revitalized the nation.

Uh…..no. The facts show otherwise. We didn’t come out of the Great Depression until WW2 forced us to ramp up manufacturing capacity that had been underutilized for a decade. Here’s the way it looked:

Image for post
Image for post
Unemployment Rate, 1929–1945

The New Deal passed in 1933. That recovery curve is no different than the curve from previous recessions, ones that had no government policy solutions attempted — in fact, it’s longer. This is why in 1939, FDR’s Treasury Secretary, Henry Morganthau, said this:

We’re Spending More Than Ever and It Doesn’t Work — Henry Morganthau, 1939, Congressional Testimony

I’m… going to believe the financial expert that was on the ground at the time, not historical revisionists commenting on the matter 80 years ex post facto. And Milton Friedman, who covered the entire matter in his seminal work. And who won a Nobel Prize for being the authority on the Great Depression. And who doesn’t agree with you.

Little of this history came up at a recent debate on the Republican tax plan between Senators Bernie Sanders (I-VT) and Ted Cruz (R-TX).

Well, true. Ted Cruz certainly wasn’t going to parrot revisionistic economic history. Cruz has his own issues with economic truth, but economic truth is that we didn’t come out of the Depression until we ramped up military production and thus put people back to work.

American greatness is a consequence largely of state investments in research, infrastructure, and working people.

Nonsense. We industrialized in the late 1800’s without any investments from the government whatsoever. The inventions of the late 19th and early 20th century (mass electric generation, the light bulb, the telephone) kicked off massive PRIVATE investments in infrastructure which drove into the Roaring 20’s, also the decade where the (private) investment in the automobile brought them into common use, and we then (not privately, but on local investments, not federal) built out roads, bridges, and retired a lot of horses. And the guys who used to clean up all that shit in the streets.

By then, America was pretty great. Privately.

Then, the GOVERNMENT overreacted to a sharp but unremarkable stock market downturn with some nasty policies and tariffs (Hoover was as much of a economic liberal as FDR was), the Fed decided to raise rates instead of lower them in response, the policies of the central banks of Germany, the UK, and UK towards post WW1 Germany came home to roost, and the GOVERNMENT(S) turned that sharp but unremarkable stock market downturn into a full blown worldwide recession, one which the government was feckless to avert.

Then, WW2 kicked the economy in high gear (OK, THAT is government spending). But after that, the economy drove hard because we were the only supplier to the rebuild of an entire continent.

Sanders then explained something to the American people that they haven’t heard in decades: higher tax revenue, properly allocated, can mean enormous benefits, both in services provided and overall money saved.

Mmmm. Trickle-up economics. I know of no examples of that being successful. Certainly it wasn’t in the US. Only a revisionist would make that claim.

Unfortunately, the Danish questioner was correct. This is a dual problem in the US. The Democrats think there can be a Danish-style social welfare infrastructure funded only by the rich; unfortunately, there’s not enough “rich” to make that arithmetic come out. But, the GOP is just as bad; they want to have an american style social welfare system paid for by nobody at all.

But, let’s chat about what the cost of all this might be. The Tax Foundation writes this:

Scandinavian income taxes raise a lot of revenue because they are actually rather flat. In other words, they tax most people at these high rates, not just high-income taxpayers. The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent.

Right now, the person earning that 60K in the US is taxed an effective rate of about 11%. I look forward to the “progressives” explaining to the middle class all the goodies they’re going to have if they (only) permit their taxes to rise by 500%. (Bad news here. Middle class voters can do that math.)

Essentials like healthcare and education should be publicly funded. It could actually lower costs for millions of Americans because they will be subsidized by the taxes of higher earners, and because governments don’t have to turn a profit. Private insurers do, which leads to skyrocketing costs and cruel denial of coverage. The average American, as Sanders put it, would be better off to “pay $3,000 more in taxes and see a $5,000 premium to a private insurance company disappear.”

Look, rainbows and unicorns.

Yes, Sanders scores his own program by paying 3K more and paying 5K less. Unfortunately, that comes from him scoring his own program. Scoring from liberal thinktanks of course agrees with him; scoring from conservative thinktanks laughed hysterically at his assumptions. But, let’s look at what the New York Times, no bastion of conservativism that, has to say:

Currently, American companies have an estimated $2.4 trillion stashed overseas. The Koch brothers, major patrons of Republicans like Ted Cruz, hold nearly $100 billion between them.

Yep. Because of that massive 31% corporate tax they’d have to pay to repatriate that money. See comments on this above. And the largest holders of all this overseas wealth are not the Koch’s, but companies like Apple and Google.

No Republican has ever explained what a tax cut for the Kochs, netting them a few billion dollars more, will do for the economy or the American people that their already enormous wealth can’t.

We actually explain this all the time; you’re just not paying attention. The Koch’s (and Apple and Google) hold massive amounts of money in their overseas corporations. They’re going to leave it there and invest it overseas, because their shareholders demand that they invest efficiently. If yuu lower the rate, then that money is free to be invested wherever the company sees fit. America is suddenly not short changed out of any deals.

This is the simplest counterpoint to the longstanding Republican lie of trickle-down economics.

Sighs. One of these days I’m going to write a long treatise on this myth that supply-side economics never works. It doesn’t work SOME of the time, because it’s dependent on other economic conditions, but other times it’s worked famously, the best example probably being the post WW1 recession, which was rather nasty.

Republicans appeal to America’s past greatness, then strive to dissolve everything that made it possible. They long for a return, not to the era of public investments and a prosperous middle class, but to the Gilded Age of business kings and abused serfs.

I think we’ve pretty much disproved those shibboleths.

For that, we should look to the progressive era — the era of higher taxes, activist government, and growing prosperity.

Yes. Nothing like surrendering your economic freedom to bureaucrats. That always works so well. (wink). You might consider that your comment above about the “Gilded Age” is no different here; with your program, the only difference is that the kings to be the politicians instead of the businesspeople.

I trust business-people more than I trust politicians. YMMV.

Written by

Data Driven Econophile. Muslim, USA born. Been “woke” 2x: 1st, when I realized the world isn’t fair; 2nd, when I realized the “woke” people are full of shit.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store