The Soaking Continues

WSJ: Arthur Laffer: The Soak-the-Rich Catch-22

When President Kennedy cut the highest income tax rate to 70% from 91%, revenues also rose. Income tax receipts from the top 1% of income earners rose to 1.9% of GDP in 1968 from 1.3% in 1960. Even when Presidents Harding and Coolidge cut tax rates in the 1920s, tax receipts from the rich rose. Between 1921 and 1928 the highest marginal personal income tax rate was lowered to 25% from 73% and tax receipts from the top 1% of income earners went to 1.1% of GDP from 0.6% of GDP.

Or perhaps you’d like to see how the rich paid less in taxes under the bipartisan tax rate increases of Presidents Johnson, Nixon, Ford and Carter? Between 1968 and 1981 the top 1% of income earners reduced their total income tax payments to 1.5% of GDP from 1.9% of GDP.

And then there’s the Hoover/Roosevelt Great Depression. The Great Depression was precipitated by President Hoover in early 1930, when he signed into law the largest ever U.S. tax increase on traded products—the Smoot-Hawley Tariff. President Hoover then thought it would be clever to try to tax America into prosperity. Using many of the same arguments that Barack Obama, Nancy Pelosi and Harry Reid are using today, President Hoover raised the highest personal income tax rate to 63% from 24% on Jan. 1, 1932. He raised many other taxes as well.

President Roosevelt then debauched the dollar with the 1933 Bank Holiday Act and his soak-the-rich tax increase on Jan. 1, 1936. He raised the highest personal income tax rate to 79% from 63% along with a whole host of other corporate and personal tax rates as well. The U.S. economy went into a double dip depression, with unemployment rates rising again to 20% in 1938. Over the course of the Great Depression, the government raised the top marginal personal income tax rate to 83% from 24%.

Is it any wonder that the Great Depression was as long and deep as it was? Whoever heard of a country taxing itself into prosperity? Not only did taxes as a share of GDP fall, but GDP fell as well. It was a double whammy. Tax receipts from the top 1% of income earners stayed flat as a share of GDP, going to 1% in 1940 from 1.1% in 1928, but at what cost?

The number of people who simply cannot comprehend the relationship between taxes, revenue and growth never ceases to amaze me. In this piece, Laffer–who else, right?–does an unbelievable job of putting simple truths in easy-to-understand and difficult-to-dispute historical context. It’s a must-read for anyone who has ever engaged in a Laffer Curve-related argument before. Great stuff.

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Comments

  1. Anonymous says:

    “Giving money and power to government is like giving whiskey and car keys to teenage boys.”

    P. J. O’Rourke

  2. Chuck Harrison says:

    What, no mention of the Clinton tax hikes and his balancing the budget?
    How typical of the right to ignore inconvenient data.

  3. Anonymous says:

    Clintonn was president of a bubble, lucky to be in the right place at the right time.

  4. Davecat84 says:

    1995 Republican Congress rolled back the Clinton Tax Hikes and cut spending. No luck really involved.

  5. Chuck Harrison says:

    Dave,

    I can only assume your joking. If not, how about doing some research.

  6. Chuck Harrison says:

    Dave,

    Please tell me why Laffer did not mention Clinton.

  7. Anonymous says:

    Why doesn’t Obama do what Clinton did?

  8. Weak math says:

    You know you’re in deep when the countries billionaires say they will give half their fortunes to charity, and that amount only equals 600 billion, which is just one third the annual budget deficit. And they think they are going to right the fiscal demise this country is in off the backs of the rich. Laughable.

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