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High Taxes on the wealthy is what got us out of the deficit after WW2

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kylio27 posted on Sun, Sep 16 2012 6:43 AM

History is not on your side, guys. 

High taxes can make sense if you spend it on the right things; like infrastructure, small business, getting the middle class working, etc. Unfortunately. Obama didn't do those things; he followed Bush's lead and continued his agenda. The deficit after WWII was twice what is is now (compared to GDP and adjusted for inflation) and we got out of that by having high taxes on the wealthy which increased wages for the middle class and caused spending to increase and increased the tax base.

We need to bring back those tax rates today, so we can get out of our current deficit. 

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 No!

From Making Economic Sense

Myth 3: Tax increases are a cure for deficits.

Those people who are properly worried about the deficit unfortunately offer an unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent to curing someone's bronchitis by shooting him. The "cure" is far worse than the disease.

One reason, as many critics have pointed out, raising taxes simply gives the government more money, and so the politicians and bureaucrats are likely to react by raising expenditures still further. Parkinson said it all in his famous "Law": "Expenditures rise to meet income." If the government is willing to have, say, a 20% deficit, it will handle high revenues by raising spending still more to maintain the same proportion of deficit.

But even apart from this shrewd judgment in political psychology, why should anyone believe that a tax is better than a higher price? It is true that inflation is a form of taxation, in which the government and other early receivers of new money are able to expropriate the members of the public whose income rises later in the process of inflation. But, at least with inflation, people are still reaping some of the benefits of exchange. If bread rises to $10 a loaf, this is unfortunate, but at least you can still eat the bread. But if taxes go up, your money is expropriated for the benefit of politicians and bureaucrats, and you are left with no service or benefit. The only result is that the producers' money is confiscated for the benefit of a bureaucracy that adds insult to injury by using part of that confiscated money to push the public around.

No, the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget. How and where? Anywhere and everywhere.

http://www.lewrockwell.com/rothbard/rothbard184.html


http://library.mises.org/books/Murray%20N%20Rothbard/Americas%20Great%20Depression.pdf

http://mises.org/econsense/ch2.asp

 

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Facts are facts. After WW2, the high taxes on the wealthy helped boost the economy. 

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Facts are facts, yes. But unsupported assertions, and confusing correlation with causation, are not facts.

Not to mention that back then the tax laws had huge loopholes that have since been closed, so that nobody actually paid those high taxes.

Finally, isn't paying 70% of all income tax high enough already?

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kylio27:
History is not on your side, guys. The deficit after WWII was twice what is is now (compared to GDP and adjusted for inflation) and we got out of that by having high taxes on the wealthy which increased wages for the middle class and caused spending to increase and increased the tax base. 

Oh yeah? Are you sure history isn't on our side. Are you sure it wasn't having the mass of our most able bodied labor force return from unproductive labor like war and into productive labor like producing goods (ones that didn't get blown up or shot)? GDP is also dubious. Our GDP was much higher during the war than after it, yet during the war, most of the country lived in abject poverty compared to their lifestyle after it. Interesting that during the war, much more of our GDP was the result of government expenditures.   

 

kylio27:
High taxes can make sense if you spend it on the right things; like infrastructure, small business, getting the middle class working, etc.

Yeah, we just need to spend taxes on the right things? And how will you build that infrastructure? How will you get the "middle class" back to work? I bet the government will pay people to do this, wont they? And where will they get this money? From the rich? This is pure Keynesianism, and Bastiat and Hazlitt (among many, many others, both on these forums and off) have thoroughly debunked this little fallacy you hold. It's called the broken window fallacy. Here is Hazlitt's little fable from Economics in one lesson:

 " A young hoodlum heaves a brick through the window of a baker's shop. A crowd gathers, and begins to stare at the gaping hole in the window. After a while, the crowd feels the need for philosophic reflection. Several of its members are almost certain to remind the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Fifty dollars? After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $50 more to spend with other merchants, and these in turn will have $50 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and

no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

 

The glazier's gain of business, in short, is merely the tailor's loss of business. No new "employment" has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately

Visible to the eye."

You see, when it comes right down to it, you foolishly believe that the hoodlum is not a sinner in this little story, but, rather, a saint. You ignore the suit maker, and praise the menace (the government) for providing work to the glazier. You fail to see that employment has not risen.

But lets exchange the baker for rich-mother fucker, who you want to tax. You may assert, "well that rich mother fucker didn't need the suit. he has plenty, damnit! Good for the glass maker!"

Maybe he doesn't need the suit, but for every luxury you demonize the rich for buying, you must also condemn the perhaps lower or middle class producer of the suit, as well. 

You may also assert, "lets say the glass never broke but the suit was also never made! Lets say the baker simply kept his $50! How can you maintain that this would be better for the community? That fifty isn't going into the economy to 'create jobs'!"

Well, two things. First, is a pane of glass and fifty dollars better than just a pane of glass? A glass is still wasted if it is brokes, right? The community as a whole is poorer by $50 is the glass breaks?

Second, where do you think the baker keeps his money? Under his pillow? No, he will eventually spend it on something, or invest it back into his business (creating employment), or he will put it in a bank which will lend it out to create the jobs you so desperately desire.

However, if you tax him $50 (to him the equivalent of breaking his window), then, yes, it may go to hiring someone to build a road, but it may not. Even if it does, the state has created no more employment for the economy than the baker would have anyway. Now, you could assert that the government will spend that money on jobs more efficiently than the baker (the market) will. In fact, this is your assumption.   

The fact is your whole theory rests on this very assumption: that the state knows how to allocate resources (be it commodities or money) more efficiently than the market can. You can talk about the rich all you want, but It doesn't matter if they are rich, poor, or in the middle. They are all, in one form or another, the baker in this story. The rich baker may be able to afford the $50 tax more easily than the poor baker, but at the most basic level, you are still assuming the government can spend money more effectively than the market can. If you don't believe this, then you should rethink your position, shouldn't you?

I think there has been plenty of work done on the economic calculation problem to prove this assertion incorrect. Chief among this calculation problem is not just how much to spend, but on what. As you said, "we just need to spend it on the right things!" Well, how do any of us alone, including you, really know what the right things are? The only way to know is through a rational pricing system of profits and loss. This tells us not only what to produce, but in what quantities and qualities, and where.

Let me ask you this, Kylio: If creating jobs is so key to getting the economy back in good order, and we can do this by building infrastructure such as roads,  what do you think about this plan? I know of a way we can easily raise unemployment to nearly zero. Lets take all of the unemployed and put them to work building roads, but instead of giving them giant backhoes or even shovels, lets give them spoons with which to dig! Lets also pay them $60 an hour. Better yet, $1,000 an hour. That will put plenty of money in the hands of the middle class with which to spend and jumpstart the market, right? 

But, uh oh, where will the money come from? We could print it...but that will just devalue everyone's spending power, most of all the poor that you claim are so exploited. Well, we could tax, and more specifically, tax the rich. But, according to you, they have all the capital. Take it form them, and it's the same as taking it from the baker, right? They can't hire as many people now. They can't invest it in the bank with which to loan it out for others to start small businesses, which you claim to be a big part of fixing the economy. They can't spend it on the market, either, which you claim is just what the economy needs; more money to spend.

Do you see the absurdity of your argument in practice? That if your theory holds true, that we can just tax the rich to get ourselves out of this mess, then my plan  to use spoons for $1000 wages would be the best solution? In short, a market suffers when consumption exceeds production. There is no way to increase wealth overall without producing. You cannot produce wealth by printing or taxing. Wealth must come from production. Even if the government "produces" something, like a road, they didn't really produce any wealth. They stole wealth and resources from a more productive use into what will always end up being a less productive use, mainly because they have no way of calculating economically. Supply and demand are immutable laws of an economy, and in charge of this economy, you want to put the one institution that refuses to acknowledge these laws' existence, the state.

It does not follow.          

 

kylio27:
Obama didn't do those things; he followed Bush's lead and continued his agenda.

Funny how they always seem to do that, isn't it? If we just spend the money on the right things! But, to do that, we just need to elect the right person. Someone out there surely knows all of the detailed complexities of the world market, right? The likelihood of this person's existence is just slightly less than Santa Claus's. Get a grip and doubt your dogma. 

 

"If men are not angels, then who shall run the state?" 

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Not to mention that back then the tax laws had huge loopholes that have since been closed, so that nobody actually paid those high taxes.

 

Show me proof. 

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Sorry, bub, but that data and history are both on our side.

Tax rates have no significant impact on tax revenue: http://mercatus.org/publication/tax-rates-vs-tax-revenues

Taxing the rich won't fix the deficit: http://mercatus.org/video/will-taxing-rich-fix-deficit

And like was already posted, the rich already pay "their fair share," or multiple times that, I think, seeing as how they pay the bulk of all income taxes and at effective rates about 3 times as high as the average American.

Dont forget, after WWII, federal spending was reduced something like 60%...

If you want to tax the rich to fix the deficit: you'd need to raise the effective federal rate to 86% on the top 5% of income earners.

Nothing you have said on this forum is based on reality.

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Actually, what got the US out of debt after WW2 was largely repayment from the destroyed countries of the world. After WW2, the US was in the unique position of being basically the only major undamaged industrial power in the world, whereas all the countries that would otherwise have the industrial base to compete were either (A) destroyed or (B) Communist.

Thus, while the US had a massive deficit, US industry basically had free reign in terms of exports to the rest of the "free" world. Demand in countries such as Britain, France, West Germany, Japan, and so on was massive for rebuilding efforts, yet those countries were incapable of competing even in their home markets with their industry destroyed.

The American companies were thus able to make huge profits with their exports, and in turn hired more workers to increase production. Taxes were not so high as claimed, since they were intentionally designed to have enough loopholes to make them quite low easily. Add in the fact that many of the destroyed countries of Europe were paying the US reparations and the deficit wasn't too hard to stop.

Mind, this was an entirely unique situation that cannot be replicated. Unless you expect WW3 to be damage-free to the US, and desirable, the only result of jacking up taxes on the wealthy would be slowing production alongside the inflation coming from QE3.

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kylio27:

Not to mention that back then the tax laws had huge loopholes that have since been closed, so that nobody actually paid those high taxes.

 

Show me proof. 

The burden of proof rests on the accuser, Kylio, which in this case is you. I have offered such proof first out of good faith, now answer my questions. You ask for proof of loopholes, yet pose similarly unsubstantiated assertions and figures. I am not saying your figures are not true (although i think you are interpreting them incorrectly), but all you have offered so far is mere assertion, saying "the facts are the facts". We are more than happy to debate you here, but please be professional and do us the courtesy of abiding by the same rules of debate you demand that we abide by. 

So, Kylio, the burden of proof is on you before anyone else on this thread.

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Kylio - let's tax 100% of all income. Sound good? Then the government can invest it where it thinks is right.

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Wheylous:
Kylio - let's tax 100% of all income. Sound good? Then the government can invest it where it thinks is right.

This was, essentially, my point. You either assume that the market allocates money best, or the state does. It is illogical to say otherwise. If you do believe the state allocates resources better, then they should control everything and money should be abolished. If not, then the market should control everything...that is, if your goal is maximum efficiency. 

 

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To say that the high taxes ended the deficit after WWII suggests that receipts were raised after WWII to cover spending. The first surplus was in 1947; receipts were lower by 15% compared to 1945 (38.514 billion vs 45.195 billion). Spending in 1947 was 63% lower than it was in 1945 (34.496 billion vs 92.712 billion). Spending bottomed out in 1948 at 29.764 billion.

Spending in 2011 totaled 3.603 trillion, while receipts totaled 2.303 trillion. Give us the same spending cut as after WWII and we'd have a historically high surplus of $963 billion. Of course, you can't accomplish such a drastic spending cut over 2 years, but cutting a cool trillion is more feasible. And receipts will rise as the economy gains strength.

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Esuric replied on Sun, Sep 16 2012 12:20 PM

 The deficit after WWII was twice what is is now (compared to GDP and adjusted for inflation) and we got out of that by having high taxes on the wealthy which increased wages for the middle class and caused spending to increase and increased the tax base.

Your initial premise is just wrong, never mind the fact that you have absolutely no theory whatsoever to back up your argument. It's true that top marginal tax rates where higher then, but effective marginal tax rates (i.e., what individuals actually paid) were much lower. This is due to the fact that there were many more loopholes back then (most of which Regan closes during his tax reforms). 

Additionally, history has shown that in fact you can increase federal tax revenue by lowering taxes (JFK 64`, Regan 86`, Clinton 97', Bush 03'). This is primarily due to the fact that lower marginal rates increase productivity and the amount of hours worked (Prescott), i..e, output. People also tend to avoid spending a large amount of money figuring out ways to avoid paying taxes when they're low. 

Also, let us ignore the fact that we could tax every individual, earning more than 250k a year, 100% of their income and we still wouldn't get rid of this deficit. 

 and we got out of that by having high taxes on the wealthy which increased wages for the middle class

And how does this happen? How does taxing one sect of the economy increase wages for another sect in a capitalist system?

 

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Esuric:
Additionally, history has shown that in fact you can increase federal tax revenue by lowering taxes (JFK 64`, Regan 86`, Clinton 97', Bush 03'). This is primarily due to the fact that lower marginal rates increase productivity and the amount of hours worked (Prescott), i..e, output. People also tend to avoid spending a large amount of money figuring out ways to avoid paying taxes when they're low. 

Kylio, look up something called the Laffer curve for more on this. 

 

Esuric:

 and we got out of that by having high taxes on the wealthy which increased wages for the middle class

And how does this happen? How does taxing one sect of the economy increase wages for another sect in a capitalist system?

Are you seriously making the assertion that this country has ever been a capitalism, much less in the modern day? Or, are you simply saying that if we did live in a capitalist system, taxing the rich would not increase the wages of other classes? If the latter, how is there taxes in a capitalist society, or are you a minarchist?

 

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Esuric replied on Sun, Sep 16 2012 1:58 PM

 Are you seriously making the assertion that this country has ever been a capitalism, much less in the modern day? Or, are you simply saying that if we did live in a capitalist system, taxing the rich would not increase the wages of other classes? If the latter, how is there taxes in a capitalist society, or are you a minarchist?

Capitalism =/= anarchy. Capitalism is a system of production defined by organic, emergent mechanisms that guide/direct production  (which emerge out of voluntary exchange that occurs simultaneously in multiple markets).

"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."

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