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Tuesday, November 11, 2008

Tax Rates During the Great Depression

From Alex Tabarrok via Greg Mankiw [click on chart to enlarge]:

Great Depression   

http://taxprof.typepad.com/taxprof_blog/2008/11/tax-rates-during-the-great-depression.html

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» Tax Rates During the Depression from Conservative Musings
For those that haven't seen this, here's the highest bracket tax rates from 1925-1945, including the depression years of 1930-1940.Raising tax rates didn't shorten the depression back then, nor will it shorten it in the future. It's been tried.(HT: Tax... [Read More]

Tracked on Nov 11, 2008 9:22:57 PM

Comments

No wonder Atlas Shrugged...

Posted by: Jeff Mitchell | Nov 11, 2008 8:33:01 AM

Powell's "FDR's Follies" and Smiley's "Rethinking the Great Depression" are good books about that era.

Posted by: Joe Yowsa | Nov 11, 2008 8:41:00 AM

How about quantifying the number of taxpayers and amount of taxes collected at these highest marginal rates?

I recall an argument I had back in 1952 (when I was taking a federal taxes course in law school) with a soon to be CPA friend who attacked the then income tax rates that went to at least 90%. It took a while for me to convince him that the highest rate did not go back to dollar one of income. Some wealthy taxpayers might barely have lifted a finger getting into a higher or even the highest bracket.

And then provide a comparison of the income levels of the working masses and their effective tax rates. They would have to do substantially more than lift a finger to get into a higher tax bracket what with only 24 hours in a day.

Posted by: Shag from Brookline | Nov 11, 2008 8:43:29 AM

Hmmm, one might almost surmise that our late 20th-century prosperity was due to reduced taxation.

Posted by: PJ | Nov 11, 2008 10:30:02 AM

Agree with Shag. This chart is only relevant if you know the overall average effect, not the highest marginal bracket.

If the 94% bracket only affected the top ten earners, vs. top ten percent, in the entire country, than those outliers do not reflect the overal effect of the tax bracket.

Posted by: Aaron | Nov 11, 2008 11:20:21 AM

Posted by: Shag from Brookline | Nov 11, 2008 8:43:29 AM

Hmmm, one might almost surmise that our late 20th-century prosperity was due to reduced taxation.

..and the educational opportunities provided by the post WW ll G.I. Bill, a not often mentioned component of wealth building in the last half of the 20th century.

Posted by: chad | Nov 11, 2008 12:12:54 PM

Or one might argue cause and effect in the direction it actually happens, forward in time. Here we can clearly see, the low taxation rates of the 20s lead to the great depression, which only ends after the imposition of heavy tax burdens on the wealthiest individuals.

The concentration of great wealth in the hands of the few is the greatest cause of economic suffering in the world.

Spreading the wealth is simple ethics.

Posted by: jj | Nov 11, 2008 12:15:43 PM

I am willing to bet they set it up this time
so you can just pay your taxes at the bank.

Talk about convenience!

Posted by: Don Robertson | Nov 11, 2008 12:19:24 PM

For those lucky enough to have a job and earning up to $4000. The tax rates were 1931 1.5%, 1932
4%, 1941 1st $2000 10% and next $2000 13%, 1942 1st $2000 19% next $2000 23%.
Also history shows lower tax rates not only generated more tax revenue in total but a much higher percentage was paid by those in the highest tax brackets. The problem also is that in constant dollars since 1965 Federal spending has grown 2.28% per year on average and from about 19% of GDP to 23%. of GDP. The conclusion is spend less and tax less.
To PJ yes the higher collection rates due to lower tax rates were generated from economic prosperity as well that is related to the lower tax rates. Look at the historical record. Less government, more freedom, more economic prosperity for all. There will always be a bell curve but the amounts and opportunity for all rise.

Posted by: Bill Well | Nov 11, 2008 12:31:02 PM

We must remember taxes are not for revenue. Taxes are for 2 purposes. Firstly to pay interest on a hoax national debt to the Rothschild banking cabal, and secondly but more important to delete excess money from the system to maintain a predetermined amount of inflation (the real tax). The government gets the money it needs by borrowing from these bankers who get it from the government and not from taxes. The government could print money as easily as it prints bonds so why does it borrow the nations money into existence? Go back to 1913 to get the answer to that question.

Posted by: bonanzaman | Nov 11, 2008 12:40:24 PM

Well... the bills needed to be paid.

When a small few get grossly richer at the same time government spending increases, there is usually a direct correlation. Those who prosper from tax money during hard times have a responsibility to recycle that tax generated money back into the system, not their own pockets.

The increased tax revenues during the Great Depression were spread throughout all the classes, putting money back into the system that wouldn't have been there otherwise. This allowed the middle class to restablize and grow, leading to the prosperity we later enjoyed.

Taxes on the wealthy are like a laxetive. They relieve the pressure of the bottleneck, allowing the entire body to function in a healthy and productive manner. It equalizes cash flow, and allows the free enterprise system to work effectively for everyone.

Once the middle class begins to enjoy financial stability, the taxes even out and reduce for everyone, as long as spending is held in check.

Posted by: Tired of the Noise | Nov 11, 2008 12:55:36 PM

"How about quantifying the number of taxpayers and amount of taxes collected at these highest marginal rates?"

Is your premise that the numbers of these people pale as a percentage of the mass population and somehow that makes it ok to tax almost all their income at the higher marginal levels?

These are the people that are creating jobs in the economy and many, if not most, will be small business owners. Approximately 80% of all job created from the early to mid 1990s to present was created by small business owners ... the so called "rich".

Posted by: jdflorida | Nov 11, 2008 1:22:17 PM

I can certainly agree with Tired of the Noise about one thing - taxes are like a laxative. But I am not sure I agree with any of the rest of the interpretation. Ultimately, the higher rates slowed recovery - when coupled with the restrictive monetary policy and tightened trade we struggled to get out of the depression. A couple of those factors will be in play in 2009.

Posted by: drtaxsacto | Nov 11, 2008 1:34:33 PM

This chart is an argument for a single tax rate. Any time you apply rates in this manner, class warfare results along with corruption of the tax code.

Before you reflexively reject this idea, consider our proposed Asset tax and Balanced Budget Amendment. We solve the problem of taxing the rich at www.hedgehogparty.com.

Posted by: ezagrodzky | Nov 11, 2008 1:44:37 PM

Very few pay the top rate... When Teresa Heinz Kerry released her income tax we learned she paid 12.4 percent on income of 4 million. This was a lower rate than the middle income earners of 2003. The reason her rate was so low is because most of her income came from tax free city/state bonds. The rich will always have loopholes because they contribute to political campaigns. It is also why we have 66,000 pages of tax code. The greatest return on investment today is to gain special tax and regulatory treatment. A very good reason for a smaller and less intrusive government. Most likely Cindy McCain pays a similar rate - just so you don't think it is party specific.

Most of us could live very well on what Bill Gates pays his tax advisers!

Posted by: JGsez | Nov 11, 2008 1:55:07 PM

If you look at this graph you might get the impression that the top marginal rate was dramatically decreased after WWII, but it wasn't. It was 91% from 1946 to 1963, which for the most part was a period of strong economic performance.

I'm not advocating that we go back to a rate anywhere near that high (and neither is Obama) but if you include the postwar decades then the evidence for the harmful effects of high tax rates looks a lot shakier.

Posted by: Foo Bar | Nov 11, 2008 3:13:03 PM

"...Spreading the wealth is simple ethics."

In order for it to be simple ethics, wouldn't there have to be a precondition that states all people in terms of work ethic and intelligence are the same? To me, not stabbing your neighbor is simple ethics. Unwarranted class redistribution must be a higher form of simple ethics I just won't be able to appreciate.

Posted by: Chris | Nov 11, 2008 3:24:26 PM

Dear Chad:
The greatest cause of economic suffering in the world is the extreme form of socialism known as communism, not a few wealthy individuals. Socialism has resulted in more mass murder than all other political systems put together.

Posted by: Fred in PA | Nov 11, 2008 3:25:13 PM

Dear Chad:
The greatest cause of economic suffering in the world is the extreme form of socialism known as communism, not a few wealthy individuals. Socialism has resulted in more mass murder than all other political systems put together.

Posted by: Fred in PA | Nov 11, 2008 3:26:48 PM

I don't think anyone should have to pay more than 35% or 40% of their income in federal income tax, let alone 94%. Taxes should go to pay for services the government provides to the tax payer, such as defense and law enforcement, and to provide for a safety net when people lose their jobs. Taxes should not be used for social engineering. I also believe that taxes on capital gains are lower because it encourages investement and rewards the investor for taking the risk of investing. As you increase taxes on capital gains, less people will lend money to people who want to start businesses, which in turn creates jobs.

Posted by: SamIam | Nov 11, 2008 3:27:35 PM

Forget tax breaks, zioni$ts are getting your tax money (i.e. Goldman Sachs, AIG). Anyway, Mossad already owns Obama (he picked Rahm Emanuel, the son of a terrorist). Obama will probably let Mossad slide on their 9/11 involvement and Obama will continue their wars. So who won? Israel did, as always.
9/11 and Israel, here:
http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=309228910&blogID=441442669

Posted by: Mike R | Nov 11, 2008 4:53:16 PM

Last Sunday morning while getting the papers at a local 711, a customer I see there frequently asked me if I was a person who would be paying more in taxes under a President Obama. I reminded him that I am a retired attorney (age 78) and really wished that I was indeed making more than $250,000 in annual income. I don't think this person voted for Obama. So I described to him what I call the "Lottery Democrat" - one who doesn't have a pot to piss in but agrees that paying taxes is awful and if he hits the lottery, he doesn't want to pay taxes on his winnings. Another self-made man, my friend. A man of principle without any principal.

Posted by: Shag from Brookline | Nov 11, 2008 5:01:23 PM

I see the live style of common folk and rich folk in countries like Sweden, Norway, Holland, Denmark - clean streets, low crime, almost no murder, legalized drugs, great schools, great institutions, no wars, crime is treated as a disease, great infrastructure, great technology with 50% tax rates.

And then I look at the US and the border town shabby sheik appeal of the allusion of wealth where some guy in a 400K House and IOUS for 3 cars and every trinket he can find on the internet thinks he's rich, where we have a high infant mortality rate, our average lifespan has just dropped below seventy, secondary students can barely speak English, much less another language and can't spot or name nations or states on a map, where schools like Yale graduate imbeciles like Bush and basically serve as Zionist Madrassas. A country with the highest per capita prison population in the world, a country with the highest rate of murder.

A country where a hillbilly, whose about 20K away from even having a taxable income votes for someone like Bush so his taxes won't get raised, who votes for someone like Bush because he's against abortion, but disregards all the aborted children that have resulted from our illegal wars, who votes for Bush because they need Jews in Israel to fulfill their Messianic Rapture Synopsis, but are okay with killing Jews in Iraq, Syria and Iran - and then I see commenter's posting about tax rates based on income when those rich fat cats write down the incomes using all those loopholes their lobbyists got for them and don't pay a cent? The cap on social security is 80K - make the fat cats pay social security to the full extent of their income - because my friends - social security is being tapped to pay for every pork barrel flirtation this government desires.

This is fascism - this is communism - this is socialism - but it ain't schmucks like us that are benefiting - and all because we're hypnotized by the allusion of wealth.

Posted by: Cadavre | Nov 11, 2008 5:33:30 PM

Sweden, Norway, Denmark, Holland. Declining native populations; growing immigrant (Muslim) populations. A Ponzi-scheme benefit system--who will pay for the pensions and free health care of the current working generation when their birthrates are below replacement levels? The soon to be majority Muslim immigrant population? I don't think so. And what defenses do these nations have? Are they so sure that jihadists or Russians or Chinese will never attack them that they don't need a strong military? Are they sure they can still depend on the US to protect them?

Posted by: Tori Resco | Nov 11, 2008 6:43:00 PM

Hey, Shag...who defends Scandinavia when the time comes?
What percent of Scandinavia is ex-slaves?
Do they respect family and life?
You have no clue...but you do have envy. What keeps you in this country while millions are here illegally and legally from dozens of other countries?
The tax code is a weapon of liberals here now...which is why they detest a flat tax or sales tax...tough to buy votes with that. Liberals run the worst off ten cities...solid dufus democrats.
Morals matter, character counts...destroy the family, destroy the nation.

As a side note, the liberals (secular socialists) you probably eagerly vote for use every tax loophole they can find...as they say, "liberals are generous with others' money"...heck, check the rate of charitable giving for the millionaire political (liberals) here...most all give 3% or less...but you are never ever giving enough to the govt...so they can buy votes for the next election, create dependency and grow, grow, grow.
The govt never ever "leans down", its 4-12% raise annually year after year, deserving or not.
Please do your homework...we see you for what you are and its one jealous unhappy misinformed soul. You have been duped.

Posted by: Dou Schexnayder | Nov 11, 2008 6:58:56 PM

I see the live style of common folk and rich folk in countries like Sweden, Norway, Holland, Denmark - clean streets, low crime, almost no murder, legalized drugs, great schools, great institutions, no wars, crime is treated as a disease, great infrastructure, great technology with 50% tax rates.

You are aware that the bottom 20% in those countries pay enormous taxes...20% not including national health. In the UK, for example, the bottom 20% will pay nearly 30% when national health is factored in.

In the US, the bottom 45% pay zilch.

If we want our tax code to resemble the EU, the plan on cranking up the tax rates on the bottom half.

Posted by: matt | Nov 11, 2008 7:05:04 PM

Ah yes it is Governments roll to curb human appetites by making it difficult for people to have incentives to sin against Mother Earth. Once those incentives are finally removed life on earth will be a “Utopia.” For some reason Thomas More should not have gone straight to heaven for writing that book. Mindless happy people will be smiling at each other and the world will be a perfect place.

What bull crap these liberals continue to pour down their ever loving belly. As long as you bellies are fed you should be happy. NOT!!!!!! Man does not live by bread only, but by every Word uttered by the mouth of God. Filling you bellies reminds me of the Marxist crap “To each according to his need” This is not perfection you toothless liberals or have you forgotten the TV show "The Prisoner" Number Six played by Patrick McGoohan throughout the series, Number Six attempts to escape while defying all attempts to break his will. The Prisoner is the antithesis of the Move-On Youtube cartoon of Zombies who continue to move to the beat of the sound MOVE-ON.

Europe, China, Russia, and soon South American will all be perfect wastelands full of Zombies living in the Frozen Narnia who have accepted the prattle of Government controlled living. Strange as it may seems, life exist where there are still little imperfections and they are to be found in American and Africa and for a time Eastern Europe. Those imperfection belongs to souls who are not confounded by big brother telling them that they shouldn't think, but must just bow down or you will lose your Right to eat.

Remember the concentration Camps in Europe were first designed by Anthropologist, Socialist, Darwinist and Psychologist to find a way of getting rid of useless Eaters. Welcome to the real “Brave New World” where the only brave ones are those that defy Big Brother, and get their bowl of courage from secret passages in church on Sunday.
Ah but big brother will remove those tax exemptions from the Churches nigh, and no one will be able to defy Big Brother. OH YEAH!

Posted by: TLewis | Nov 11, 2008 8:36:59 PM

There are about 124 taxes now plus we are a very charitable nation...call that a "faith tax" if you like. A flat tax or sales tax is feared by Congress because then they can't use it as a tool to jerk groups around or reward certain voters.

Over 40% of wage earners pay NO taxes. Enough already. What stake do they have in taxing the higher achievers and those that hire? Zip, they have no clue that this country already has the 2nd highest corporate tax rate of free countries!

The Reagan tax cuts proved (again) that revenue grows with lower taxes (even millionaire demos won't hide as much)...it grew 40%...democrat Tip o'Neil "promised" some good spending cuts BUT lied (of course). The dem congress spent "the extra" buying votes...then turned around and lied that 'Reagan caused deficits"...they are never short of nerve but always short of truth. This myth still lives in the biased media that never fact checks much anymore.
Bashing Bush or being jealous of the richer (except of course rich Hollyweird libs or lib "trust babies" like Teddy K) is not a substitute for truth.
Who will defend Scandavia if needed? What percent of ex-slaves are there?
What is the family morality there, divorce rate and other cultural landmarks?
Why do tens of millions come here to America and stay?
Yes, Jimmah Carter lived...look up all that economic mess.
There are two things that terrify the congress...term limits and tax reform...this is the 9% approval congress, the royal congress.

Posted by: reelman from La. | Nov 11, 2008 9:25:40 PM

The coming depression has again been orchestrated by the federal reserve, albeit, central bankers. JP Morgan was the primary culprit for inciting bank runs, and later seeing that margin calls and loan calls were mandatory. Bankruptcy galore...and will be/is happening again. There is only one force that will stop these criminals.... :>]

FYI - A higher tax rate leads to prosperity regardless of what you have been told. Taxes, if used appropriately, are excellent means of distributing the wealth. The problem in the USSA is that corporation are supposed to be carrying the burden of federal taxation, but that has been laid upon the work person. We also have complete corruption of the Congress and zero accountability for appropriating moneys for worthwhile projects and policies. We are run by criminals. We eat from the hands of criminals. We work for criminals (major corp that is). And we die for criminals (major corp). These criminals are the corporations, and specifically, the invisible owners of preferred shares/bonds that you never see.

Our lives and the world is run by a small handful of "jews" who have bloodlines to those that ruled in early times of pharaohs and kings. They are still fighting over terrorities, and still fighting over personal issues, still fighting among the tribes. You wonder why Iraq was destroyed (literally),

"Nebuchadnezzar engaged in several military campaigns designed to increase Babylonian influence in Syria and Judah. An attempted invasion of Egypt in 601 BC was met with setbacks, however, leading to numerous rebellions among the states of the Levant, including Judah. Nebuchadnezzar soon dealt with these rebellions, capturing Jerusalem in 597 BC deposing King Jehoiakim, then in 587 BC due to rebellion, destroying both the city and the Temple and deporting many of the prominent citizens along with a sizable portion of the Jewish population of Israel to Babylon. These events are described in Nevi'im and Ketuvim, sections of Tanakh, and the Hebrew Bible. After the destruction of Jerusalem, Nebuchadnezzar engaged in a thirteen year long siege of Tyre (585-572 BC), which ended in a compromise, with the Tyrians accepting Babylonian authority."

http://en.wikipedia.org/wiki/Nebuchadrezzar_II

Iraq was revenge for the "jews" because of what happened in the past. However, the funny thing is that the true jews are the palestinians, not the fake fat bald headed zionist sending our kids to die in an illegal war.

http://www.rense.com/general83/wandering.htm

You had better watch your back, and your neighbor's back....there is much more in store for all us "gentiles". And now for some humor...

http://www.youtube.com/watch?v=Vb3IMTJjzfo

Posted by: dogismyth | Nov 11, 2008 10:00:58 PM

Cadavre...Good for you!

Posted by: Zito | Nov 12, 2008 12:21:39 AM

You must research and stop the factless assertions!
You are mistaken and refuse to check history. That is serious.

The problem is govt 90% of the time. Socialism is not the answer...ask Cubans who are in the USA. Cut the jew hate. My last name is german and (my wife and I have doctoral degrees)...you have shamed yourself.
The modern liberal is an angry secular socialist whose faith rests in govt and control of others.

If you can't see the abuse of high taxes (even) in your lifetime...you simply cannot reason...you are emoting fear-hate and the usual prattle for pseudo-intellectuals believing themselves elite perceptive visionaries.
Its a safe bet that the vast majority of like minds grew up in broken homes and harbor some grudges they will die with...their motto is' I am happy being unhappy". This is usually an incurable chronic disorder.
When 40% of wage earners pay no federal tax and the socialists want to hammer those "evil corporations" laboring under the 2nd highest corporate tax rate in the free countries...all logic is lost on them.

Companies are relocating to Ireland because they slashed their corp tax rate...hey, just do your research and stop all the crybaby hateful fact-free litany.
=====
I am just an old retired college prof who can't type...but still I recognize baloney when I read it.

Posted by: reelman | Nov 12, 2008 9:22:17 AM

As always discussions regarding tax rates are really about distribution
of wealth. The Obama camp wants to raise taxes on the very wealthy. People in the top 5% of earners. In other words he wants to raise taxes on 5% of the people. Why because that top 5% are securing a hugely disproportionate amount of the wealth on an annualized basis. And if those people continue to do so as they have for the last 10 years or so it leaves less and less to be distributed to the other 95%

It is not rocket science, merely common sense. The size of the pie is finite; should we give to the many or give to the few? Bush and company decided to give to the few. The rest have suffered. The problem is that we live in a consumer based ecomony. When the many have less they consume less. And so it goes.

Posted by: DDearborn | Nov 12, 2008 11:19:46 AM

I'm impressed by the lack of knowledge exhibited by some posters here.

You make it seem like the top marginal bracket of 94% affected a large number of taxpayers. Thats just a very fancy number that reflects absolutly nothing. How about this. I propose a law that taxes income at 100% ... for the first $10 of income. WOW, the top tax bracket is 100%!!! That will cause society to self-destruct!

Lets get real. This chart holds very little information, and its relevency isn't shown unless there is additional quantifying information.

Posted by: Aaron | Nov 12, 2008 1:15:18 PM

There are some impressively crazy posts in this thread. Who new that a tax blog would attract so much attention from the nutters?

Posted by: Mose | Nov 12, 2008 1:30:54 PM

"Spreading the wealth" is not "simple ethics." First, there's no way to really know what that statement means or entails. Second, I doubt that your favored method of "spreading the wealth" is actually more capitalism, which is the most efficient and most effective way of doing so.

A simpler ethical statement might be "don't steal."

Oh wait.

Posted by: Harold L. | Nov 12, 2008 5:57:50 PM