Tuesday, March 8, 2011

The 90% Tax Rate Myth

There is a "myth" that the economy of the United States chugged along at least in part due to higher taxes on the wealthy in the past. First, this myth, like so many about creating prosperity, ignores that U.S. growth came after two world wars wiped out most of our competitors. Second, the implication is that "the rich" were actually paying 90 percent taxes at some point in history. That's never been the case.

The U.S. tax system uses an "Effective Marginal Tax Rate" model. The EMTR is applied on ranges of earned taxable income. Each taxpayer pays roughly the same amount on his or her income within these ranges. According to the IRS, the EMTR schedule for 2011 is:

Tax Rate Income Range Taxed
10% $0 – $8,500 $8,500
15% $8,501 – $34,500 $25,999
25% $34,501 – $83,600 $49,099
28% $83,601 – $174,400 $90,799
33% $174,401 – $379,150 $204,749
35% Over $379,150 N/A

Everyone paying income taxes pays the same 10% on his or her first $8,500. So, to calculate a person's "Composite Real Rate" you must average (in a manner of speaking) what he or she pays in overall taxes on earned taxable income. For example, if you earn $80,000 in taxable income in 2011, your taxes are  $16,125.10. That's a Real Rate of 20 percent. Yes, the marginal rate is 25%, but the Real Rate of tax is weighted towards the 15% bracket.

An income of $150,000 a year? The Real Rate is 24 percent. And that's not the "real rate" as most of us would think of a "real" tax rate. Why is that? Because taxable income is not even close to what most people actual earn. Earned income and taxable income are two different things in government speak.

So, let's get more complicated. When there was a 94% top rate in 1944-45, there were so many deductions and exclusions that the taxable income was not comparable to someone's entire income. First, the top rate started at $200,000, which today is equal to $2,413,059.90 — so the maximum EMTR would apply only to incomes of $2.5 million. But, that's still taxable income, not earned income.

In 1944, you could deduct business meals, all business travel, all forms of interest payments, and much more. You could even deduct spousal travel expenses on a business trip! (Why travel alone?) Companies could also "loan" or "provide" almost anything to an employee, from an apartment to standard benefits. It was possible to shelter tens of thousands of dollars from taxable income. Three-martini lunches and expense accounts were important realities, skewing tax calculations.

As a result of deductions and exclusions, even the theoretical maximum Real Rate of taxation at 60% in 1944 overstates taxation dramatically. The reality? On earned income, the richest U.S. taxpayers paid close to 40 percent of their earned incomes in taxes in 1944. We simply didn't count much of the compensation as taxable income. 

Allow me to introduce you to Hauser's Law. Published in 1993 by William Kurt Hauser, a San Francisco investment economist, Hauser's Law suggests, "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." This theory was published in The Wall Street Journal, March 25, 1993. For a variety of reasons, we seem to balance tax collections within a narrow range.

Since 1945, U.S. federal tax receipts have been fairly constant in terms of Gross Domestic Product (GDP), with taxes ranging from 15 to 20 percent of GDP. The graph is as follows:

When people demand higher taxes on the rich, usually phrased as paying a "fair share," they are ignoring how our tax system has functioned historically. We could create more brackets, to tax the top 1% at a higher rate once again, but the net increase in tax revenues wouldn't be dramatic. Why not? Because government spending is near historical highs: we are spending at near-WWII levels. It would be nearly impossible to tax enough to pay the federal bills, and doing so would likely crush the economy.

So, how could we address income inequality if not through increasing taxes? That's really what people are asking when they demand fairness. The real complaint is the gap between rich and poor. I'll address that issue in an upcoming blog entry.


  1. But if we had a tax of 90% on 2.5 million then the people that make that much money will stop making more money and leave some for others to make or invest in hiring more people which is good for every one.. Its like saying theres 100 guys in a room and theres enough food for everyone but one guy says I'm take 60% and theres nothing anyone can do about it cause thats the way the system works..

    1. Except money isn't like food in your example. More money is constantly being printed. Also, your example would more realistically be described as such:
      "100 people are in a room. All food comes from outside farms. All people are bringing in enough food to provide basic nutrition and live. One man is bring in much more than he needs. He then uses that extra food to hire other people, giving more people more food, and having services done at the same time (i.e, I fix your sink for food). If this man had 90% of his food taken, he would not be able to hire as many people, and the people who depended on working for him for food would have nothing. Even if this taken food was then redistributed, you would lose the service being provided (the fixing of the sink), and you would end up with less than if you left that man his food."

    2. The economy is not a zero sum game, try again.

    3. False analogy. The room scenario you described is a zero sum game, the economy isn't. Therefore it isn't valid to compare the two.

    4. Hey Andy,

      When the rich dude has '90% of his food taken', it doesn't disappear. It gets spent by the gov instead of him. So instead of viewing him as a 'job creator', he's just another consumer. He may consume other peoples' labor (time/skill/effort) in creating a corporation to earn him profits, but he's not a job creator. The market demand creates jobs. Not entrepreneurs. Entrepreneurs just chase demand and buy labor in order to earn even more revenue and make profit. Entrepreneurs do not create jobs unless the demand permits them to profit. They are not responsible for job creation. It's a side effect of profit-seeking.

      You and all libertarians confuse that taxes are not just 'taken'. They are not burned under the Capitol in a Pagan Orgy. They are just respent by the gov't, which again, creates jobs, and multiplies as the dollar flies around the economy. If the government destroyed each dollar it taxed, your viewpoint (shared by millions of misguided Americans) might be valid (even then, it would deflate the currency still around, so it probably wouldn't be valid). But it's not. The government spending money is a much more effective job creator and employer than rich entrepreneurs spending the same money. The question is, how can you spend a dollar that it will fly around the economy the most times. If you leave it with a rich man, he won't spend it unless there's already a good economy in which he can get a great return. But the government isn't interested in ROI for themselves, they're looking for biggest multiplier effect they can find. The latter is much more likely to move economies toward fuller deployment of capital so supply can meet demand, and fuller utilization (higher employment) can be realized.

      One thing that liberals and conservatives will disagree on, is whether the government spending creates demand. I think it depends on how they spend it, but I can prove to you it creates demand.

      Indulge in the following thought experiment: imagine the US gov't printed money, took in war bonds, and spent all the money exactly how it did to build tanks, planes, ammunition, etc during WWII. Now imagine that instead of fighting a war, we just sent thousands of men, planes, bombs, tanks, etc to the bottom of the ocean, or out into space on a one-way trip to the sun.

      Now, realize the economic effect is 100% exactly the same whether those planes/tanks/bombs/men fought a war or were sunk or fired into the sun.

    5. T.M. -

      I've written several times on this blog about the "Broken Windows Fallacy" — which economists generally agree is just that: a fallacy. Regions destroyed by natural disaster would, under this theory, experience not only a short-term boon, but an overall improvement. They don't. Instead, the capital (human/material) that could be spent on advancement is lost to rebuilding what already existed. In other words, progress is suspended to repair and rebuild. That's not a net positive, unless you are against advancement.

      Your example of WWII is mistaken on several fronts because the factories and knowledge from WWII was not all destroyed or without purpose. Also, while much was destroyed, a significant amount of the items built and people trained were not destroyed.

      The factories were quickly "repurposed" because the economies of the time were steel and rubber. Making a car is similar to making a Jeep. Making a battleship and making a cargo ship, also similar. Retooling after the war was relatively easy for the United States, while European industry was destroyed. The U.S. quickly became the leading exporter to nations that had no serious manufacturing ability.

      Spending without purpose is not productive. The immediate effect on GDP is positive, but only because we measure GDP as short-term spending. Long-term, waste is lost opportunity, misdirecting human and material capital away from projects that might lead to innovation and discovery.

      Our recovery after the war was in large part because we were relatively unscathed — running directly counter to the Broken Windows Fallacy. We benefited while Europe had to borrow and spend to buy goods from the United States. Even better, they borrowed and shifted funds from the United States, along with grant monies that circled back to the U.S.

      As for spending, Japan is evidence that spending on hundreds of projects for the last decade haven't helped their economy. Plenty of articles also exist on Japanese stimulus spending and its stunning failure to stimulate, much less multiply, growth.

      Government doesn't spend well, for any number of reasons. We know schools have a multiplier effect and prisons do not. (Prisons, like natural disasters or wars, have an "opportunity cost" that outlasts any initial and limited boon to a small region.) But, even knowing schools are a positive and prisons a negative, many states spend more on prisons. One only needs to look to California to see odd spending priorities and their economic effects.

      Again, I've written on this blog on the various studies demonstrating problems with the Broken Windows Fallacy, the WWII myths of growth, and spending as a multiplier. The San Francisco Federal Reserve has published some of the best studies on problems of the multiplier effect: it never seems to match the predictions, and sometimes is negative.

    6. Peter Schiff broke this theory down as well. The ignorant sheep march chanting tax the rich more. It won't help. If we do not stop government senseless regulation and spending. The balance of necessary regulation and ideological regulation needs an overhaul. The post war 90% tax on the wealthiest Americans was easily avoided through loopholes etc. To say that's what recovered the economy lacks any break research.

    7. @TomMercer "...They are just respent by the gov't, which again, creates jobs, and multiplies as the dollar flies around the economy..." Explain to me exactly how the government "creates" jobs. I did not realize the government was a corporation that creates goods that are in demand. The government does "multiply" dollars and that's called inflation.

  2. Money, unlike food or natural resources, is not a "fixed" quantity -- even on a standard, such as gold, the value of money does shift and change.

    Studies in econometrics, both historical analyses and experiments, have shown that if you take money from the top performers within a relatively short time they rise to the top again. That's one explanation for why many entrepreneurs have one or more bankruptcies / disasters / business failings and still rise back to the top. This is also true of people moving from one system to another -- the people at the top remain at the top following transitions of government or business.

    Behavior, human nature, is not dictated by political or economic systems. What is dictated is how some personalities find ways to "win" within whatever systems they find themselves.

    When the top "stops making more" there simply is no evidence someone else enters the void. The top 1% of U.S. incomes starts at $350,000. That's no where near the "millionaires and billionaires" some decry. If you're an entrepreneur in California, $350,000 in S.F. or L.A. doesn't go very far. Plus, parts of both areas have "living wage" laws, which have increased the numbers and actually widened the earnings gap.

    You could tax me more, but I'll just work harder and pay myself more to make up the difference. That risks moving more money out of the lower and middle classes, at least as income. Sure, the government might redistribute that money, but my drive and my desire to be the best of the best isn't going to vanish. My bitterness and cynicism will increase, though.

    There is a reason the "wealthy" don't take much "income" each year. The super-wealthy will always find ways to compensate themselves circumventing income taxes. The income tax will, by its nature, only penalize the moderately "wealthy" and the middle class. (The poor are already exempted -- 47% or more pay no income tax.)

  3. "But if we had a tax of 90% on 2.5 million then the people that make that much money will stop making more money and leave some for others to make or invest in hiring more people which is good for every one"

    This illustrates one of the main fallacy with leftist thinking about wealth. They assume it is something in a big pile to be distributed so if some have more they must've gotten to the pile first and taken more than their fair share. This may have had some kernel of truth in feudal and pre-industrial times when wealth was concentrated in land ownership. But even then and especially now, wealth is created by improving land, creating new inventions and processes, doing things more efficiently.

    Bill Gates is not rich because he got to some mythical pile of wealth too early, but because he created a product which millions of people found useful. His wealth is just a measure of how much gross utility he provided for someone else. All non-coerced trade is by definition good for both parties or they wouldn't engage in it.

    Limiting peoples income to $X either by fiat or by setting marginal tax rates so high that it is no longer worthwhile to make more than $X leaves no more wealth for others to claim. In fact, it reduces overall wealth by restricting the main creators of wealth. If such limits were imposed, there would likely be no PCs, no IPads, no cars, no trains, no planes, no washing machines, ad infinitum...

    Envy is one of the most destructive of emotions, it has no positive aspects and in the end destroys what is sought. Yet it is the barely hidden support beam of almost all leftist economic thought which can be reduced to "I want what he has and if I use the government to give it to me it's not theft," except academics with good word skills make it sound more noble.

    1. Van Gogh didn't sell a single painting in his life thus your premisse that "If such limits were imposed, there would likely be no PCs, no IPads, no cars, no trains, no planes, no washing machines, ad infinitum..." is proven wrong. Human curiosity, inventiveness, genius does not need profit to flourish and this is proven times and again in history. The greed and lust for money, on other hand, has nothing to do with progress ....

    2. it is far more complex than Van Gogh or a few other examples. The other great minds did have patrons, commissions, and sought compensation. That there will always be people content with intrinsic motivation is a good thing, Steve Wozniak comes to mind, but the people motivated by a competitive nature are as important to the balance in society.

      Economic systems aside, there are people driven by external rewards, and people driven by intrinsic motivation. These personality traits seem to be 40 to 50 percent genetic; different socioeconomic models would have to find different ways to reward the extrinsic individuals.

    3. Van Gogh was a drug crazed lunatic. Bad example

    4. Van Gogh was a drug-crazed lunatic. To use this as an example to negate John Hurdock's excellent point is not accurate.

  4. 90% taxation ushered in the largest economic growth for America because that $$$ that was made from taxation, was spent on American goods and services! .... in business, only profit is taxed, so if you didn't want to pay all 90%, you can just spend more expenses with your company! hiring more workers, or buying more goods.. what we need here in the USA now, is to close the foreign loopholes and force companies to be more local.

    1. At last.....someone has a brain. People are fed so many lies that companies would 'stop spending and hiring' if they were taxed more. What a load of rubbish.

  5. Don't forget John that: Bill Gates makes multiple billions in Government funding buying his computer OS and high-end services.

  6. The "90%" marginal rate only applied to a handful of people, nowhere near the numbers affected by the AMT and top rates today. You can have a "90% rate" that applies to nobody — I suppose having the rate made someone feel better, but it was meaningless.

    From CBS Marketwatch: "The AMT was designed in 1969 to ensure that wealthy taxpayers didn't use loopholes to escape paying their fair share of taxes. The original target was 155 filers with the then-exorbitant income of $200,000 who avoided paying any federal taxes."

    Imagine that: 155 filers earned $200,000 at that time. Today, the AMT affects millions of tax filers, because the floor is $75,000 in taxable income. Yet, we don't seem to be any better off because there are still plenty of loopholes and exemptions for those with less "earned" income.

    Bill Gates doesn't "make multiple billions" in taxable income — I guarantee he keeps most earnings as capital gains, unredeemed stock, and bonuses of various kinds (which are taxed differently). Having an income tax allowed Steve Jobs to have an income of $1/year. Technically, he wasn't in any tax bracket.

    Having 155 families in the top bracket? That was the top in 1969. As rates were lowered, the brackets were also expanded. That's a very reasonable approach if we insist on an income tax instead of a consumption tax.

    The *effective rate* is what will always matter. And the effective rate seems to be very constant. Therefore, the better solution is closing loopholes, making the tax code simpler and more difficult to abuse.

  7. To clarify, it was 155 families that avoided paying income taxes, despite income of $200,000. The total filers in the top bracket was slightly more than 1000 filers. But, their effective rates were about 40% according to the data.

    Effective rates still show that people top-out near the 40% range. Maybe there's a psychological threshold, because I've seen studies showing the wealthy manage a 40% rate in most of Europe — despite much higher marginal rates.

    Behavioral economics do come into play. We'd have to study at which point the behaviors of the wealthy change. It seems to be 40%, but why? Is that the point at which they perceive no more return from government services?

    Personally, I believe 40% is too high. But, I also don't like relying on an income tax. You can't shelter consumption as easily as income. A consumption tax is unlikely, though, and I fear if we did add one, it wouldn't be accompanied by lower income tax rates. I'd demand lower income tax rates in return for a consumption tax.

  8. Thank-you! I heard that 90% tax rate figure, and I just couldn't believe it! It made no sense. All the rich people would move out of the U.S. if that had actually been true. Common sense just doesn't allow for it.

    1. Don't be fooled into thinking that the rich "support us'. They can move away fro all I care and make room for honest companies and opening up jobs.

  9. I don't understand why you continue to fight for this heavy progressive tax program. Just look at history it's been tried and it doesn't work. If your not familiar with the term war communism regaurding the Russian regim of Vladimir Lenin then get familiar. This progressive ideological thinking is straight out of the book of Marx.

  10. I've posted recently on the 16th Amendment and the limits it places on taxation. Sadly, after 1916 we saw both the states and federal governments rush to tax income. The system is broken -- and penalizes behaviors we want while rewarding passive earnings that are not considered regular income.

    At most, I've suggest a three-tier, no-deduction, semi-flat rate approach applied to all income (wages and other income).

    Right now, a farmer with a single great year (which does happen) is "wealthy" for that one tax return. We should encourage such an example farmer to save and prepare for the next bad year. Instead. Washington is considering changing investment and savings policies. I don't get it. You work hard, have a good year, and get punished for it.

    Dividend and carried interest income is a different matter, but still absurd to have so many rates and gamed deductions. Three rates, almost no deductions. Right now, taxes are a jobs program for tax law specialists.

  11. Even if they were paying *merely* 40%... that's still much higher than the 0%-13% that Mitt Romney and his buddies pay today, and it would be much better for the country.

    Also, raising the rates to 95% again would be a great thing, even if we brought back all the deductions. It incentivizes companies to put money into their businesses and employees. Either do something with your money (preferably not martini lunches, but.. housing for your employees? That's a great idea. Larger salaries, bigger benefits, more hiring in the United States, investment in infrastructure to grow the business! Finally they might live up to the hilarious "job creator" misnomer the GOP has given them)... or if you can't find something productive to do with your money.. give it to the government and they will.
    Romney and Ryan wanted a 0% tax rate on the wealthy. They just want rich people to sit on their mountains of cash and not do anything with it... which is what most of them are doing today. This is the worst thing for the economy.

    1. The highest *income earners* do pay more, both as a percentage of earnings and as a percentage of revenues, than other groups. The problem is a legal one I've written about before: the Sixteenth Amendment is clear on the nature of income taxes. We don't have "wealth taxes" at the federal level in the U.S.

      Further, higher taxes in 1940 or 1950 were never going to cause anyone to leave. Today, more than 1780 Americans renounced citizenship in 2011 alone — it is easy to move. We don't live with the same types of real or political borders as in the past.

      Raise taxes on "income" and suddenly you have people with company cars, company dinning halls (the executive dining room returns?) and so forth. You can easily get the benefits of wealth without having any income at all. That's why Steve Jobs was quite happy "earning" $1/year at Apple — compensation can take many forms, many of them outside the limits of the tax structure set by the Constitution and federal code.

    2. What does "Mitt Romney and his pals" mean? Sounds like a very bitter, envious tone. I'm not defending him, but I am defending the thousands of entrepreneurs that work hard to build something. No offense, but you also sound a little uneducated. The small "13%" tax is is capital gains tax. That's a different bracket of taxation. If you invested in the stock market, the same would be true. If he (Mitt) took a regular job, he would pay what you pay. It's not an exclusive club, it's an investment taxation category. What troubles me more is this "entitlement" tone / chip on their shoulder that people carry. Geez, all you need to do is look around the world, being poor in this country is not even close to how bad being poor in other countries is. Go get a college degree and get a job and stop envying other people's money. Even tradesmen like plumbers and electricians with no degree make a good wage, even higher than college grads many times. STOP WHINING people!

    3. What does "Mitt Romney and his pals" mean? Sounds like a very bitter, envious tone. I'm not defending him, but I am defending the thousands of entrepreneurs that work hard to build something. No offense, but you also sound a little uneducated. The small "13%" tax is is capital gains tax. That's a different bracket of taxation. If you invested in the stock market, the same would be true. If he (Mitt) took a regular job, he would pay what you pay. It's not an exclusive club, it's an investment taxation category. What troubles me more is this "entitlement" tone / chip on their shoulder that people carry. Geez, all you need to do is look around the world, being poor in this country is not even close to how bad being poor in other countries is. Go get a college degree and get a job and stop envying other people's money. Even tradesmen like plumbers and electricians with no degree make a good wage, even higher than college grads many times. STOP WHINING people!

  12. From an earlier post:

    With a $3.5 trillion annual budget, all the wealth of Bill Gates ($45B) would fund 1.3% (4.7 days) of the U.S. government. That's it. Not even one week. The 400 richest Americans, all their wealth, would fund the system for 100 days. There are 403 billionaires in the U.S., with a total net worth of $1.28 trillion.


    The numbers haven't changed much. You might get 180 days by taking (not even taxing) all the money of the One Percent. Better to grow the economy for everyone than to merely seek some sort of "fairness" through taxes. Then what? The rich would be poor… and the nation, still broke.

    1. let's do that first and then we will grow the economy together. It is not fair to ask the poor to grow the economy while the rich enjoy good life. We don't buy this argument

  13. We will be in the 28% 2013 tax brackets. I'm happy because we are skating close to the edge and the 2014 changes will keep us in the same tax bracket.

  14. Did anyone else notice that the scale used to demonstrate "federal tax receipts have been fairly constant" is deceptively larger than needed to show the actual fluctuation? If you look at the actual scale and compare it to the economy during those periods, you'll see that relative high tax periods align well with more prosperous times and low relative low tax periods align with less prosperous times.

    I also like the matter of fact comments that the economy is "NOT" a zero sum game. Okay, if you do not believe that, advocate for the treasury to print one hundred trillion dollars and pay off all our nation’s bills. That wouldn't work you say? Could the reason be that if money is created continuously, it devalues the rest of the currency by an equivalent amount (AKA inflation). When one person gains usually multiple people lose a fraction of their wealth. It may not appear to be a zero sum game because of the scale of the small losses but it most certainly is. The object of the treasury department is to print as much money as it can without making inflation (the measure of the zero sum game effect) too unacceptable to the population, especially the influential rich.

    I appreciate the author’s contortionistic logic basically claiming, "high taxes will not help the economy because the rich never really paid high taxes to begin with because of all of the tax deductions so we should not charge the rich any higher taxes because they would not pay them anyway and it would be wrong to say that it would help the economy because history says so" type of logic.

    I love the “Bill Gates wealth would fund the government for 4.7 days" trope. Why not tax him fairly like we ask of our poorest people. A worker pays 10% of their wages in payroll taxes. Bill Gates pays less than a fraction of .01%. There are no deductions for payroll taxes and yet people like this author do not usually consider them taxes at all until someone suggests eliminating the cap, suddenly it becomes the biggest federal tax increase in history. Payroll taxes, sales taxes, state & local taxes and permits & licensing all unfairly burden the working class more than the wealthy. If I have a billion dollars in the bank, it is only fair that I pay a slightly higher percentage of my income than someone making just enough to live on especially since the wealthy person is probably the one paying barely livable wages in the first place (I'm talking to you Walton family)

    All income should be treated as income. Taxes should increase as income increases making it more difficult for people to accumulate ridiculous amounts of wealth. If one percent of the population owns 80% of the stock market and 60% of all off the wealth in this country, we have a problem. With that much wealth, undue political influence creates concentrated into the hands of the few lessons our democracy and allows our nations sovereignty to become questionable. If you think that is crazy conspiracy talk, please explain our US Attorney General admitting that some banks are too big to prosecute.

    Even if taxes on income over 2.5 million dollars were to be taxed at 90%, rich people would still want to make that extra $100,000 for every million earned; especially if it is earned by what Adam Smith called "Rent". That is money earned without actual work. Basically, investments are renting money. This money should be taxed like a tractor pull weight. The farther you get in a tractor pull, the more the weight gets and the harder it is to pull. The rules are the same for everyone so it is fair and you still want to pull the farthest even if it is more difficult. Taxes are money that goes back to the United States to keep this country great and it builds parks and roads and military necessities and provides jobs so that people can buy products that create more jobs and so on... That is the way the economy grows, not by stashing trillions of dollars overseas in secret tax shelters.

    1. If you read the blog posts, you will find that I oppose any "tax expenditures" that favor one group over another. Your criticism is too broad for one post on the myth of effective tax rates, which is a complex topic on its own. The highest marginal rates do not align with the most prosperous times, but the higher effective rates did, until the economic collapse of 2008-09.

      I've also written about the penalty of fees, licensing, minimal corporate taxes, and other burdens that regressively hinder small business. Large companies have no problem with set-rate and set-minimum taxes, which are almost always unfairly burdensome on smaller business and individuals.

      Again, your response does not take into account the entire blog… only one post, on one issue. I do address the other issues on a regular basis.

    2. Quantity Theory of Money --- MV=PT --- was "debunked" by the author, Irving Fisher. He stated that this theory would apply only to a fictional static economy, not to a dynamic market economy, where an increase in the money supply normally causes growth, jobs, production.

      The exception is if the economy were in a condition where jobs or other resources are already totally maxed out, no more growth possible.

      The US economy only came CLOSE to that condition a few times, World War One in particular. There was some rationing and calls for self-rationing. The Govt sold "War Bonds". Did those bonds "pay for" the War? Or did those bonds reduce the consumption power of current workers, saving that for after the war?

      That "inflation tax" is a myth that says we have no other choice but to purposely cause mass unemployment and poverty.

      How high should unemployment be for a capitalist economy to be "most productive" or "most efficient"?

      Obviously a stupid question. Unemployment isn't productive. Human sacrifice doesn't cause rain or good crop yields either.

      That's one reason MMT was joking about Quantitative Easing as "Aztec Economics", the magical belief that swapping Bonds out and Dollars in to banks' reserve accts at the Fed would magically spur economic recovery via bank lending . One problem: banks don't lend out reserves nor lend out other customers' deposits --- the process is called "balance sheet expansion".

      There is a danger of what the great American economist, Irving Fisher called “debt deflation”: falling prices raise the real burden of [private] debt, making any economic contraction worse.

      In the Great Depression, as the song goes, "potatoes are cheaper, tomatoes are cheaper, now's the time to fall in love". Austrians say that price deflation is a wonderful and natural thing.

      Well not so great for the farmer who has creditors to repay based on expectations not only on crop and livestock yields, but economic yields, who now has to dump products for the same or less than his costs.

  15. The Top Ten Reasons I Hate Capitalism:

    10: Kim Kardashian
    9: Vast economic inequality destroys democracy
    8: Survival of the fittest (I'm definitely not among the fittest)
    7: Donald Trump
    6: The Attitude of the Fittest toward the Unfit
    5: "Reality" TV
    4: Walmart
    3: Mark Zuckerberg
    2: It appeals to the worst aspects of human nature
    And the #1 reason I hate capitalism: I am not Bill Gates!


    Perhaps that's what it comes down to. That's what the conservatives and defenders of Capitalism would have us believe.

    Or perhaps there is just something inherently unfair and unjust about it.

  16. We don't have capitalism. We have fascism, crony capitalism. We have not had capitalism for decades. You blame a symptom , but not the disease. It starts at Washington. Until you end the corruption of lobbying and special interests you will run around blaming capitalism like some ignorant child. Government is established under the constitution for one reason. I'm curious what you want in place of capitalism? Socialism? We all know where that leads.

  17. You guys forget the obvious that only PROFIT is taxed in the US Business Economy... This is the flaw of conservative propaganda: When you hold it to the light of truth, they are already getting away with paying no taxes by cooking the books

  18. Only Profit is Taxed. ... Do the math.

    1. Actually, there are states with minimum corporate fees and taxes. For a large multi-national, not an issue, but for a California based small business that decides to incorporate, the incorporation is regressive. If you own a small business, simple things like inventory tax in some states can be significant, and those are not based on profits.

  19. Taxes for Revenue are Obsolete!
    NY Fed Chairman Beardsly Ruml, January 1946

    Govt DOES just confiscate tax revenue. Spending is not functionally dependent on taxation, pointless for Uncle Sam's revenue, functionally just deleted.

    Warren Mosler -- author of the article above, which quotes Ruml from 1946 -- has a standing $100 Million Challenge since 2010 on these and related facts. If proven wrong about how the Fed, Treasury, IRS, and monetary system operates, he will spend $100 Million from his personal wealth to "pay down the debt".

    This is NOT to say that NO TAXES should be collected on anyone, just because taxes don't supply revenue. There are other purposes.

    Ruml shows that Tax Policies should be pursued with regards to real economic and political outcomes.

    Taxes reduce Demand when the economy is "too hot". Targeted taxes reduce economic activity we want to reduce.

    We tax Liquor and Tobacco to reduce use of these "sinful" commodities. We shouldn't tax fuel unless we choose to reduce wasteful driving and inefficient cars.

    If the Govt did not collect taxes, that state currency would lose intrinsic market value and would truly be "worthless fiat". But US Dollars are accepted to pay your tax bill, which can be thought of as Entrance Fee for "playing" in our wonderful USA economy. That Legal and political Power of the Govt to SPEND dollars into existence and then demand a PORTION of those dollars back from SOME Currency Users, helps drive demand and therefore value of the dollar. One important MMT principle

    Ruml's article called for eliminating all corporation taxes ... per se.

    We should eliminate Sales Taxes at the state level. Sales Taxes reduce Sales. Consumption Taxes reduce Consumption. Duh!

    Eliminate ALL taxes on LOW END wage income, like the bottom 50% or 90% or 98% of income earners. This would be in tune with the ideals of Adam Smith and arch conservative admin of Coolidge in the words of Andrew Mellon.

    Since 100% of wages of the poor goes to consumption, nothing left for long term savings, by definition, taxing the poor DIRECTLY cuts into Aggregate Demand, penny for penny, and increases poverty.

    That would entail suspending FICA Payroll tax. FDR agreed with Gulick that Payroll tax was economically unnecessary, it was politically necessary to "justify" the program, to make beneficiaries FEEL entitled, and protect his program from future Tea Baggers --- NOT to literally fund it. Treasury can add Account Credits to the "Trust Fund" in the form of special T-Bonds without Payroll taxes.

    What about taxes on Artificial Intelligence computers that do front-running on human traders? Ban them or tax them higher? A higher tax on such trading leaves less space for profits on"marginal" penny trades that suck the wealth out of the Market without adding anything useful or productive --- profits from a kind of "private TAX".

    How about a tax on ALL forms of unproductive, unearned, parasitic gains and income that are not the result of any productive endeavor, adding nothing to human society, doing no userful work whatsoever, just "milking the system".

    Everyone knows or should know that it's not Food Stamp recipients who are "milking the system" for their $200 per month per person. People milk the system for millions or tens of millions, both the Govt system and the private Economic system.. Milking the economic system is parasitic on every actual producer, worker, and honest capitalist, drains off the life-blood of real capitalism.

    Michael Hudson has some lengthy explanations on this "Free Lunch" grabbed by the Super-Wealthy, usually tax-free. TAX THAT. Stop taxing productive endeavor.

  20. High taxes on untaxed income is pointless.
    Also, as stated previously,

    Taxes for Revenue are Obsolete!
    NY Fed Chairman B. Ruml, January 1946

    Taxes are for desired economic and social policy, NOT for revenue. If a high TOP END marginal tax encourages job creation vs corp salaries, dividends, bonuses, that can't be bad.

    I've read about schemes where corps "sell" their own cherished Logos and symbols to some shell corp located in a tax haven, then lease the use of their logo back, reducing their domestic income and tax liability. Then the only remaining issue is the capital is stored offshore.

    Michael Hudson spoke about offshore tax havens, narcotics, terrorism, organized crime, etc. with an interviewer named Standard Shearer (?) on Counterpunch. He did not favor high tax RATES because 99% of nothing is nothing.

    But the Govt itself has no need for tax revenue or "balanced budgets" except in the feeble imagination of pro-poverty politicians.

  21. What many people fail to realise about the period when the tax rate was 90% was that the capital gains tax was 25%.

    What actually happened during that period was that "rich people" simply stopped engaging in business; stopped paying themselves large incomes, and instead concentrated on being investors (paying just 25%).

    The reason is that most of these people were already rich having inherited (or married) large sums in stocks, bonds and real estate so they concentrated on that; afterall, why would you go to work and pay 90% to the government when you can play golf, go sailing and attend dinner parties, manage your stock portfolio and pay 25% on any gains?

    If you want to check I think you will find the richest families a century ago were heavily involved in business - 60 years ago they were not (except as fairly passive investors).

    They did not leave the US in droves - a common fear today - but rather lived lives as an idle rich (perhaps sitting on a Board or two to do something with themselves when it was too wet to golf).

    There are millions of people in America who have large amounts of investments; perhaps worth less than in 2007, but asset rich none the less; by all means rack their incomes taxes up to 90% and they will quit 'work' and sit back collecting dividends (low taxes) and capital gains (low taxes).

    If you go back 60 years the number of people earning $200,000 in 'income' and paying 90% in taxes was ...zero; the numbers playing the stock market, pocketing $200,000 in capital gains and paying 25% in taxes was....very large.

  22. I can not help but laugh with fear over the very stupid comments I'm reading , let's see. I invent something that people want , I invest my money in building a factory , and a warehouse to store and shop my products from , so I , by having the factory's built by other humans who do that kind of work, and hire people to work in the factory and warehouse and hire trucking company's to ship my product to stores who hire people to stock and sell the products ? So I did not create any jobs ? Am I getting that right. You communist left wing nut jobs

  23. Before planning and practicing schemes of how to reduce corporation tax, you must be clear about who all are liable to pay corporation tax. A limited company is subject to tax on its taxable profits which include profits on capital gains and trading and investment profits. In order to calculate the amount to be paid, you are required to work out on your own the tax liability and pay it. You cannot afford to commit mistakes on this as this might attract fines for the wrong amount calculated or delayed payments. For this purpose, it is recommended to hire our tax expert.
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