Why do higher taxes on the rich historically correlate to higher economic growth

[notme]

Correlation is not the same as causation. Perhaps you would like to rephrase your question?

Anytime a topic mentions correlation, this needs to be the first reply.

He's asking what the cause of the correlation is.  I don't see a problem with his subject.

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[odolvlobo]

Correlation is not the same as causation. Perhaps you would like to rephrase your question?

Anytime a topic mentions correlation, this needs to be the first reply.

He's asking what the cause of the correlation is.  I don't see a problem with his subject.

Taken at face value, it is a legitimate question, but the correlation is never really the subject. Perhaps I am wrong in this case. It really depends on the replies, I guess.

Here is my suggestion for a cause (assuming there is one, of course) of the correlation: During times of higher economic growth, the rich get richer; the general population sees that as unfair and insists on raising taxes on the rich. As a result of the increased taxes, the economic growth ends and taxes are rescinded to try to return to economic growth. There you have it - higher economic growth begets higher taxes on the rich, lower economic growth begets lower taxes on the rich.

[bb113]

From OP:

http://conceptualmath.org/philo/taxgrowth.htm

First of all this correlation is only shown for maximum marginal tax rate, which almost noone pays and generates a very small percentage of total tax revenue.
Second of all the correlation is almost entirely due to 6 years all occurring before 1945.
Third of all why does this chart only go to 2003 when the data source used goes to 2008. It also skips 1946.
Fourth of all this only looks at the US.
Fifth of all what correlation?

So what do we see in the data overall? Perhaps we should look at the data more thoroughly.

Yes, indeed this author should look at the data more thoroughly.


http://www.usgovernmentspending.com/spending_chart_1902_2015USd_13s1li011mcn_30f_Defense_Spending_In_20th_Century
http://www.irs.gov/uac/SOI-Tax-Stats---Historical-Table-23
http://www.bea.gov/national/xls/gdplev.xls

I see little to no correlation, any that does exist looks like it is completely explained by wartime defense spending. Is he suggesting we should have more wars?

[DobZombie]

How about everyone give me ALL their money, and I'll look after everyone with it.  FREE HOUSES, FREE FOOD, FREE TV, FREE DRUGS.  What else could a country want?

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[Lethn]

I'll just leave this here:

http://www.youtube.com/watch?v=Z0YTY5TWtmU

[cunicula]

I see little to no correlation...

I think that is the right conclusion. The data show that reducing/increasing taxation of high income earners has little effect on economic growth performance. Obviously this would not apply with say 99% taxation, but within the limits of US historical experience it seems valid.

Therefore, if you believe in diminishing marginal utility, governments improve national welfare by taxing the rich heavily and redistributing the proceeds. That seems right to me. Governments are failing to tax sufficiently. Vote Obama if you care about the US as a whole.

If you do not believe in diminishing marginal utility, then governments cannot make people better off on average through redistribution. In this case, governments can do whatever they like and it doesn't really affect national welfare. Vote Obama if you are poor and Romney if you are rich.
 

[ElectricMucus]

That's interesting dependent on where it comes from the charts tell different stories.
But if you look at the description on top what do you say to the term "All Taxes" and that, mostly, growth rates were declining over time.

[DannyHamilton]

. . .That's interesting dependent on where it comes from. . .

That's an interesting graph.  I'm not sure I trust the source. I'd like to see an independent review of his math. I tried following the links at the blog, but couldn't find the numbers being reported in the graph.

[bb113]

I see little to no correlation...

I think that is the right conclusion. The data show that reducing/increasing taxation of high income earners has little effect on economic growth performance. Obviously this would not apply with say 99% taxation, but within the limits of US historical experience it seems valid.

Therefore, if you believe in diminishing marginal utility, governments improve national welfare by taxing the rich heavily and redistributing the proceeds. That seems right to me. Governments are failing to tax sufficiently. Vote Obama if you care about the US as a whole.

If you do not believe in diminishing marginal utility, then governments cannot make people better off on average through redistribution. In this case, governments can do whatever they like and it doesn't really affect national welfare. Vote Obama if you are poor and Romney if you are rich.
 

I don't follow this, "utility" is subjective and I would like to see some support for the idea that every individual's utility maximizing behavior is good for the society as a whole. If I get small amount of more money I will spend it on beer. If I get a large amount I will invest in something I don't understand and be slowly robbed. The concept only works when there is sufficient negative feedback.

[omarabid]

I might have a poor economical background, but I don't get your points: Why would money or taxes matter?

Money is not wealth. It's not a resource. If you have people starving in your country because of food shortage, then taxing the rich 100% won't solve it. Growing food for the next year will do the thing. Certainly, in a global world this is different since you can buy food from outside. But again, taxing the rich won't resolve your trade deficit issue.

In my simple vision, what an economy needs is:

1. Full (or almost full) usage of its human and material resources.
2. A sane trade balance.
3. Technology and productivity growth, which will lead to a progress in our living standards over time.

So why our we in a crisis? Well, in my opinion, we handled the economy very badly. We are now in a huge global mess and it'll take time and effort to get clean.

[steelhouse]

Because high taxes on the rich means overall less taxes.

The lower the overall taxes the higher economic growth, it's as simple as that.

taxing the rich more does work, without penalising the poor

If the rich work less because it isn't worth the money after tax, then it does penalize the poor.  That is less money for the rich to loan to the poor or to pay the poor to work for them.  There are consequences.

Keep believing the party line all you want, it's what they want you to believe, that is why so many loop holes exist in the first place.
You really think any of the fortune 500 companies actually pay total taxes of 40, 30 or even 20%? No, they don't.
In the past 10 years, a good portion of those, have paid from total tax in single digits, to tax rebates, worth millions or even billions.
Doesn't sound like they are paying their fair share to me. Especially if they are suppose to be some of the most profitable companies in the world.

Fact is, the super rich, boast massive million or even billions of Net profits when it comes to pleasing their shareholders.
However, when it comes to taxing season, will find any way possible to make out they companies profits are low or obscured so can't be taxed or are owed a refund etc.

So no, when a company can make out business is booming, I don't see anything wrong with taxing them properly and getting rid of all these loop holes.

Corporations are not people they don't pay tax.  However small investors pay about 80% in tax.

35% corporate
15% capital gains/dividend going up to 23.7%/40% with fiscal cliff
30% inflation (cash, capital expenditure/depreciation,capital gains tax)
income tax is really paid by investors as people work for after tax wage.
sales tax 10%
15% paperwork and misc taxes.
================
80% small investors
40% Romney.

high taxes can redistribute wealth gained from monopoly.

[steelhouse]

I might have a poor economical background, but I don't get your points: Why would money or taxes matter?

Money is not wealth. It's not a resource. If you have people starving in your country because of food shortage, then taxing the rich 100% won't solve it. Growing food for the next year will do the thing. Certainly, in a global world this is different since you can buy food from outside. But again, taxing the rich won't resolve your trade deficit issue.

In my simple vision, what an economy needs is:

Millions of people survive in the USA by taxing the rich to provide food stamps.  Farmers monopolizing land plant fields based on these food stamps.  So money can cause action.

The U.S. dollar can not be considered money according to wikipedia, because it is not a store of value.

[myrkul]

The U.S. dollar can not be considered money according to wikipedia, because it is not a store of value.

It's a store of value, it's just doing a shitty job of it. Is a bucket not a water container any more because someone punched a hole in the bottom? It still contains water, just not for very long.

[bb113]

Relevant Zerohedge Chart, especially for comparing to electric mucuses.

[FreeMoney]

Because you can take a higher % from richer people without them disassembling your body.

If the people you control are generally poor they have hardly anything that you can take without causing them great pain. If they would still be the most comfortable people in the world with half of their wealth you can take quite a large fraction of it without them risking their lives to try to end yours.

[odolvlobo]

Because you can take a higher % from richer people without them disassembling your body.

If the people you control are generally poor they have hardly anything that you can take without causing them great pain. If they would still be the most comfortable people in the world with half of their wealth you can take quite a large fraction of it without them risking their lives to try to end yours.

"Rob the rich because they won't fight back as much" is hardly a justification for tax inequity. I think that each person should be taxed the same amount regardless of their income or wealth. There is no logical reason for taxing a person more if they are more productive, and taxing a person less if they are lazy. Both the cost and benefit of government should be the same for everyone.

[bb113]

Because you can take a higher % from richer people without them disassembling your body.

If the people you control are generally poor they have hardly anything that you can take without causing them great pain. If they would still be the most comfortable people in the world with half of their wealth you can take quite a large fraction of it without them risking their lives to try to end yours.

"Rob the rich because they won't fight back as much" is hardly a justification for tax inequity. I think that each person should be taxed the same amount regardless of their income or wealth. There is no logical reason for taxing a person more if they are more productive, and taxing a person less if they are lazy. Both the cost and benefit of government should be the same for everyone.

Too bad that:
Wealth!= productive
Poor!=lazy

[myrkul]

"Rob the rich because they won't fight back as much" is hardly a justification for tax inequity. I think that each person should be taxed the same amount regardless of their income or wealth.

You know what? I actually agree 100% with this... 0% across the board matches your definition.

[notme]

Because you can take a higher % from richer people without them disassembling your body.

If the people you control are generally poor they have hardly anything that you can take without causing them great pain. If they would still be the most comfortable people in the world with half of their wealth you can take quite a large fraction of it without them risking their lives to try to end yours.

"Rob the rich because they won't fight back as much" is hardly a justification for tax inequity. I think that each person should be taxed the same amount regardless of their income or wealth. There is no logical reason for taxing a person more if they are more productive, and taxing a person less if they are lazy. Both the cost and benefit of government should be the same for everyone.

Too bad that:
Wealth!= productive
Poor!=lazy

That would really simplify things.  Too bad it's easy for the wealthy to believe those are equal.

[ElectricMucus]

"Rob the rich because they won't fight back as much" is hardly a justification for tax inequity. I think that each person should be taxed the same amount regardless of their income or wealth.

You know what? I actually agree 100% with this... 0% across the board matches your definition.

Then who is gonna enforce your contracts? You know that thing which I said shouldn't backed by law which makes me an evil person