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TheTrueConservative: Higher tax rates and economic growth

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Intriguing! After the post just prior to this, Do lower taxes on the top 1% boost economy?, a comment appeared from Steve Roth at TheTrueConservative. He offers an outlook unusual on the web. Go check it out. Here’s a sample of his work, comparing taxes to changes in gross domestic product of nations:

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If taxes have a profound effect on growth, you’d expect to see a trend from the upper left (low taxes, high growth) to the lower right. And there is the faintest glimmer of one—check out the trend line.
Over twenty years the difference between low (23%) and high (46%) taxers was [only] a profound several percentage points of GDP growth.
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Follow the link to the other chart in his post, which compares tax increase with GDP growth. Here’s his conclusion:

. . . there’s not a shred of evidence that taxes in the range of 30–50% of GDP are the catastrophe that American anti-taxers assert.In fact, since all of these stable, prosperous, successful countries tax in the range of 25–50% GDP, the strongest evidence we see here is that taxes (or actually, expenditures) in that range are necessary to that prosperity. [emphasis mine]

C’mon, “economic conservatives” – let’s face the facts: modern conservatism’s anti-tax passion is the emperor’s new clothes. Has it made <i>you</i> more prosperous? Of course not.

Let’s question the shibboleths that keep us apart, and get on with building a better society.

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Written by Monte

January 17, 2008 at 1:48 pm

Posted in patriotism, Politics

A dramatic graph: income growth by income quintile

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Here’s another great find by the Freakonomics blog.

Dark bars, below, represent income growth across the economic spectrum from 1947-1973.  The least grew the most (br-r-ravo!), and the middle and upper classes did pretty well, too.

The light bars tell a more troubling story.  In recent times (73-05), the smallest incomes grew (as a percentage) the least.  In fact, without exception, the more income a quintile received, the greater was the percent of increase in that quintile’s paycheck. The least (thus), benefited least. The first, the most.

Put another way:  the economy disproportionately rewarded high-income people.  And it hasn’t always been this way.

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Economic Growth Across the Income Distribution

Yes, we already know the facts — income inequality has been increasing since the 1970’s. But it can be easy to lose sight of just how important this has been. This presentation of the data — by Claudia Goldin and my former thesis advisor Larry Katz, really hits home:

Note: The figure plots the annual percentage growth rate in mean real family income by quintile and for the top 5 percent of families for 1947 to 1973 and 1973 to 2005. Incomes are converted to constant dollars using the Consumer Price Index Research Series (CPI-U-RS). The income concept used is the official U.S. Census Bureau measure of pre-tax, post-transfer money income.
Read the full Goldin and Katz posting, over at VoxEU, for a deeper understanding of why. (Hint: It’s education.)
[T]hese data remind us that for most of the distribution there hasn’t been much income growth.

Seeing it in graphic form is startling, eh?

Follow the link to the original article to explore the thesis that this all springs from education issues.

Thought-provoking! What’s your take?

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Why cutting rich folks’ taxes doesn’t stimulate the economy

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And what does.

Another fascinating post comes from the ever-excellent True Conservative.

Consider: In 2007, only 9% of privately-held U.S. businesses … cited a “shortage of long-term finance” as a constraint on expansion. “Shortage of skilled workers” is No. 1.

So how do you increase the number of skilled workers? Here’s the story:

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Here’s the central tenet of supply-side/trickle-down/voodoo Reaganomics:
If rich people get (and keep) more money, they will invest it and promote economic growth, so everyone will prosper.
That would (perhaps) be true if a shortage of investment were an important constraint on businesses […]
But availability of investment money is the least important constraint […]
[I]t ranks dead last on the list of business constraints. […]
A shortage of skilled workers in now the #1 constraint […]

Constraint 2
[This is the] economic view so ably explicated by James Livingston, which I summarize and link to here […]
The fact is that wealthy people can’t find truly productive investments offering sufficient returns, so they turn instead to investments that don’t have anything to do with production or productivity. (Think: MBSes, CDOs, CDSes, etc.)[…]
Since the greatest constraint on growth is currently a shortage of skilled workers, the best path to prosperity seems to be taxing those unproductive dollars and investing them in the thing that … is prosperity-producing: education.
Making sure that wealthy people have plenty of money is not the way to produce prosperity. That’s a self-serving myth […]
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Provocative, eh?

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Written by Monte

November 21, 2008 at 10:50 pm

Do lower taxes on top 1% boost the economy?

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Since the days of Reagan, many have held that the economy can be stimulated by cutting taxes on the incomes of people who have the most money to invest. An insightful analysis at offers evidence questioning that assumption. Consider some intriguing observations on the data graphed below.

Chart 1: Note that at the close of World War II, Americans in the top 1% of income paid a marginal tax rate of 90%. Now, it’s about 35%. I’m sure most Americans don’t realize how profoundly this rate has fallen.

Chart 2: As the rate dropped, government revenue from this group (as a proportion of GDP) plummeted. Find ‘the late ’90s through 2001; compare them with ’02-’05.

Chart 3: Finally, note the comparison of the top 1%’s marginal tax rate with the growth rate of the national GDP. Note that it’s pretty tough to find a link between the two.

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The following chart shows the top marginal rate and the average effective rate on the top 1% of taxpayers since World War II

The following chart shows federal government tax revenues as a share of GDP by the effective tax rate on the top 1%. Read the rest of this entry »

Written by Monte

January 16, 2008 at 7:50 pm

Posted in Politics

A brief history of Iran-US relations, part 1: Constitution to Khatami

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One hears bits and pieces of Iranian-American history in the blogosphere. They travel like whispers, implied in stories that seem to fall somewhere between gossip and truth. But I have felt for some time that if Americans really understood their country’s past relationship to Iran, public policy would be dramatically different.

Juan ColeLast week, my wife Lori and I were privileged to hear Juan Cole, the University of Michigan’s distinguished expert on Middle Eastern affairs, at a luncheon of the Iowa City Foreign Relations Council. It occurs to me that notes from Prof. Cole’s brief lecture, with a few supporting resources, could provide a valuable structure for people – perhaps especially Americans – to understand the back-stories that provide the, “Oh, I get it!” when reading of today’s crises. Ironically, much American history is well known to people of other nations, but remains virtually untold here in the US.

Mostly following Prof. Cole’s chronology, then, here’s my list of headline-making bullets from the last hundred years of Iranian-American relations. Quotation marks indicate direct quotes from Prof. Cole. Italics indicate quotes from other sources, which are referenced by links within the quotes themselves. Watch for Part 2: Ahmedinejad, weapons, and nukes in a week or so, along with Part 3: Understanding US withdrawal from Iraq.

By all means, check out Prof. Cole’s Informed Comment: Thoughts on the Middle East, History, and Religion for reflection on news events as they happen.

* * *

  • 1905-1911: IRANIANS DEMAND A CONSTITUTION; US INFLUENCE WELCOMED. The US started off looking like “an honest broker” to the Iranians. From 1905-1911, the Iranian public demanded a constitution and good government. They got the constitution. American advisors were invited to help with the government.Churchill
  • 1913: OIL PRODUCTION BOOMS – UK SEIZES PROFITS. The British government, at the impetus of Winston Churchill, First Lord of the Admiralty, partly nationalized the Anglo-Persian Oil Company in 1913 in order to secure British-controlled oil supplies for its ships. Iranians would receive, perhaps,15% of the profits from their own oil for the next forty years. 85% of the profits fueled British economic growth, instead. APOC eventually became British Petroleum (BP).

[One wonders how many millions we’re talking about here. It must have paved roads, built schools and hospitals, and paid teachers for half a century of British, rather than Iranian, citizens.] … Read the rest of this entry »

Written by Monte

March 6, 2007 at 2:09 am

Posted in Iran, Iraq, Politics, Terrorism