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Igel

(35,300 posts)
3. The top rate was often high
Sat Jan 19, 2019, 04:34 PM
Jan 2019

Usually getting there because of war, not just politics. Once high, it would take a while to come down. It also fostered a major tax industry to produce ways of making sure that money at that rate was sheltered. In other words, tax avoidance strategies proliferated. And, to be honest, the US and state/local governments benefited from those strategies: One key way of avoiding taxable income was to purchase federal and municipal bonds. The bonds are still around, but don't provide nearly as much benefit.

If you're under 40 or 50 years old you're probably ignorant of the fact that the strategies existed. It takes time to learn the history, and it's best to rely on experience. Not what's in a textbook.

During the times of high top marginal rates the bottom rate was also higher than today. And unlike today, where people have lots of exemptions so even if your income pushes $40k/year you pay no federal income tax, the bottom decile still paid some federal income tax. Textbooks don't usually tell students that. It doesn't drive any argument, and social sciences are very much argument-, not data-, driven. They're like humanities with statistics.

The OP says that we long had tax rates 70% and above. That's true. It's been about the same amount of time as below 70%. That's "data" but doesn't support the argument so it's not to be mentioned. Worse yet, the longest stretch was when we had no federal income tax. Using "length of time" as an argument leads to "the highest rates were, in fact, an anomaly." To avoid that, you have to ignore most of the history. (But, again, if you don't know the history is there to be know....) Again, argument-driven fact collection.

https://upload.wikimedia.org/wikipedia/commons/7/79/USA_Historical_Marginal_Tax_Rate_for_Highest_and_Lowest_Income_Earners.svg

AOC's argument is two pronged. The first is that it would reduce income inequality. It didn't at the time, but it sounds good: High rates correlated to more equality, so causality must run from "high rates" to "equality". Other factors, mostly social but also economic, kept inequality down. AOC doesn't see those factors. They're not economic, but largely where culture and economics hook up. That cultural background was largely eroded among 20-somethings in the '50s and '60s, and when the '80s came along those kids from the '50s and '60s were hitting their 40s and 50s. We liked the cultural shift when it was taught; we didn't like its consequences. But we got what we taught. Even the reduction in income tax rates was part of that same shift. Few think it was "to the right." It was mostly normal to the right-left axis.

The second is that it increases revenue. It didn't at the time, but it still sounds good so it must be true. Most of the dips and drops are recession/bubble-related more than tax-rate related.


Now, there are a lot of reasons for revenue being flat. Total revenues like that are a mix of tariffs and income taxes of various kinds on individuals' wages, dividends, capital gains and company profits. The real point is that that's the amount that the population as a whole seems to have liked, for far longer than the time the top rate was greater than or equal to 70%. (So if "length of time" is any kind of valid evidence, this is just as valid. I'd argue that the length of time is meaningless; what matters is that this amount hasn't obviously shifted for most people, but for a minority of people the view is that somehow more must be paid ... just by somebody else.)

If you run the same kind of graph for personal federal income taxes, you'll find that it looks really similar. Part of the reason that it feels like government's constrained is that the amount given over to taxes is fairly flat (as GDP increases), but more and more of it is mandatory spending. That leaves discretionary spending as the poorer stepchild these days. Most of the budget deficit projected as of 2017 was for mandatory spending, which would crowd out discretionary spending over time. That's a problem.

The real argument seems to be, "It's unfair that they have that much, so we have to do *something* to make things fair." She's defining "fair" in a way many do, in terms of end-state, but a lot of people define "fair" in terms of process. In a democracy (which is what language usually is, and how it's been treated until recently in the West by pretty much everybody outside of grammar classes) it would be nice to let most people define "fair." Since the population's split, either we go with a compromise or we just decide to compel people to accept one definition. Nobody wants that conversation because both sides are increasing convinced that they have the One Truth to bind them all.

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