Tuesday, September 20, 2011

CIA Snuffs Out Another Peacemaker in Pakistan? (War Against the Lower Classes) The Effect of Individual Income Tax Rates on the Economy,1988 - 2010

Any time a true peacemaker arises (anywhere), he or she (or they) must be stopped. I no longer believe stories from war zones about peacemakers being killed by those who benefit from their efforts and are confused or misled by unknown sources. I think they are either murdered or have their efforts permanently stymied by those outside forces who benefit from their nonexistence.

Bomber Kills Ex-Afghan President Rabbani

From my buddy Tom at Who Hijacked Our Country? we get this very interesting tidbit in a time of loud Congressional whining about reducing benefits for everyone else in the country:

Betcha didn’t know that members of Congress can start collecting their retirement pensions when they’re fifty.  I didn’t know it until this morning.  But it figures.  These are the same sheltered pampered VIPs who receive every taxpayer-funded (i.e. Socialist) benefit imaginable, while shouting “Bootstraps!” to the rest of us.

So it makes perfect sense — from their cozy little world of fundraisers and limousines — for them to start drawing their own retirement benefits at fifty while simultaneously trying to raise the retirement age for everybody else.

Senator Sherrod Brown (D-Ohio) has introduced the Shared Retirement Sacrifice Act of 2011.  This would require lawmakers to wait until they’re sixty-six (instead of the current fifty) before they can collect their pensions.  Sounds like a no-brainer to me.

Sherrod Brown said:

“…I hear lots of members of Congress, especially, particularly conservative members of Congress, say we should raise the retirement age for Social Security…So, my thought there was that members of Congress should not be able to get their pension…until any earlier than a Social Security beneficiary should get theirs.”

Even if this bill doesn’t pass, it’ll be entertaining to hear the rightwads trying to rationalize why they should be able to retire with full benefits at fifty, while the retirement age for everybody else should be raised to 67.  Or 70.  Or 72...or 77...85...
Like the rightwing historical lies about high taxes and low growth? Then don't read these facts with the supporting statistics. And be at risk of having a seizure (of knowledge).

. . . a quick recap . . . both the 1901 - 1928 period and the 1929 - 1940 (period) failed to show the textbook relationship between taxes and growth. In fact, it seems that for both those periods, there was at least a bit of support for the notion that growth was faster in periods of rising tax rates than in periods when tax rates were coming down. It is worth noting that growth from 1933 to 1940 was generally quite a bit faster than at any other peacetime period since data has been available, both on average and for individual years. Not remotely what people believe, but that's what it is.

In the 1940 - 1950 period, we did observe slower economic growth following a tax hike and faster economic growth followed a tax reduction. However, that happened when the top marginal tax rate was boosted above 90%.

Interestingly enough, though the so-called "Kennedy Tax Cuts" are often used as one of the prime exhibits on the benefits of cutting taxes, a look at the 1950 - 1968 period yields no such conclusion. Growth rates were already rising before the tax cuts occurred in 1964 and 1965, reached a peak when the tax cuts took place, and started shrinking immediately afterwards.

The other period that is always pointed to as evidence that tax cuts spur growth is the Reagan years, which showed up in the 1968 - 1988 and t
he 1981-1993 posts. It turns out that put into context, the Reagan years produced one year of rapid but not particularly extraordinary growth a few years after tax cuts began. That's it. In fact, its worse than that... during the Reagan Bush 1 years, aside from that one good year, growth tended to shrink as tax rates were slashed.

Real GDP figures used in this post come from the Bureau of Economic Analysis. Top individual marginal tax rate figures used in this post come from the IRS.  As in previous posts, I’m using growth rate from one year to the next (e.g., the 1980 figure shows growth from 1980 to 1981) to avoid “what leads what” questions. If there is a causal relationship between the tax rate and the growth rate, the growth rate from 1980 to 1981 cannot be causing the 1980 tax rate.

Let me stress this point again as I've been getting people e-mailing me to tell me I've got the growth rates shifted a year. That is correct, and is being done on purpose (and is shown on the graph labels). To avoid questions of causality, the growth rate in year X used in this post is the growth rate from year X to year X+1. And when I say "to avoid questions of causality" - you'd be amazed at how many people write me when I don't do this and insist that sure, higher tax rates seem to be correlated with faster growth, but that's because when growth is faster governments feel more willing to charge higher tax rates.

So here's what the period from 1988 to the present looks like:

Once again, the data fails to show anything resembling the old "lower taxes = faster growth" story. In fact, once again, it kind of looks like things go the other way. The two biggest dips in the graph occur when tax rates are at low points (28% and 35%). The highest tax rates also coincide with the fastest overall growth. But no doubt next week's post looking at the next period will be the one that finally shows what everyone believes is there. Oh wait, we've run out of years.

Now, I'm sure someone will bring up the fact that there was a tech boom and the internet in the late 1990s. And no doubt there was some of that. But that doesn't explain why only once did the graphs appear to show that cutting tax rates correlates with faster economic growth, and that one time occurred in the middle of WW2 during what was essentially a command economy when tax rates were above 90%. Talk about a special case.
I'm beginning to believe that today's special case(s) belong in an institution.

No comments: