The 90% Tax:Myth or truth?

[Lord Baratheon]

This is a cliched argument from the likes of Michael Moore.That after WW2 Americans in the top income bracket were taxed 90% of their income.Apparently America was able to build Schools,Hospitals,Roads and Homes etc with the Money.Its often cited as a example of when high taxation worked, so much so,that the very Nation fighting Communism though it O.K to level such excessive Taxes,and that we should return to such a time.I having read about it believe it to be a myth.The main rebuttals to the Myth are outined quite simply below by this Blogger:http://almostclassical.blogspot.co.u...rate-myth.html

Whats your opinion on the tax rate argument?You dont have to agree but make reasoned posts and read the Blog before posting. Oh,keep it civil people

[Squiggle]

Generally speaking, taxable income is cultural. You can extract at maximum about 39% of someones income in Britain, but no higher-- the rate is slightly higher in Canada IIRC, and lower in America. The Rich will always find ways out of taxes, the problem with higher tax rates is that small businesses, which file under personal income, fall under that category and dont have the means to avoid the high rate with deductions. Otherwise the tax rate essentially doesnt matter.

[King Gambrinus]

The people who are a deluded enough to believe taxes are some sort of evil concept created by socialists will always complain about taxes, no matter how high they are.


However, 90% tax rate (after a very expensive war let us not forget) is an exceptional case.


My philosophy is : try to cut income tax as much as possible, but capital gains, property and especially inheritance tax must cover the loss. People who rely on salary are those in most need of support and a safety net.

[The Last Varangian]

My philosophy is : try to cut income tax as much as possible, but capital gains, property and especially inheritance tax must cover the loss. People who rely on salary are those in most need of support and a safety net.

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[Thorn777]

This is a cliched argument from the likes of Michael Moore.That after WW2 Americans in the top income bracket were taxed 90% of their income.Apparently America was able to build Schools,Hospitals,Roads and Homes etc with the Money.Its often cited as a example of when high taxation worked, so much so,that the very Nation fighting Communism though it O.K to level such excessive Taxes,and that we should return to such a time.I having read about it believe it to be a myth.The main rebuttals to the Myth are outined quite simply below by this Blogger:http://almostclassical.blogspot.co.u...rate-myth.html

Whats your opinion on the tax rate argument?You dont have to agree but make reasoned posts and read the Blog before posting. Oh,keep it civil people

Of course no one payed 90%, unless they where just hording money. Thats the thing about it. You make them invest that money in the economy or else they get taxed on that money. Thats why flat-taxes and the "close all loopholes" are another of these obscurities. Like when lets say someone inherets his fathers business, should he be taxed out of existance, or should there be great deductions as long as he keeps the business running, keeps 90% of the workforce aboard for a minimum of lets say 3 years? We should damn sure tax the hell out of that kid when he just sells it off, asset-strips it, throws people on the street etc.

Just one example how tax-incentives are very important, and there where many sensible ones back in those days that could lower the tax-rate drastically. Its not about punishing anyone. Its about making the economy and society work. Whats so hard to get?

[Lord Baratheon]

Of course no one payed 90%, unless they where just hording money. Thats the thing about it. You make them invest that money in the economy or else they get taxed on that money. Thats why flat-taxes and the "close all loopholes" are another of these obscurities. Like when lets say someone inherets his fathers business, should he be taxed out of existance, or should there be great deductions as long as he keeps the business running, keeps 90% of the workforce aboard for a minimum of lets say 3 years? We should damn sure tax the hell out of that kid when he just sells it off, asset-strips it, throws people on the street etc.

Just one example how tax-incentives are very important, and there where many sensible ones back in those days that could lower the tax-rate drastically. Its not about punishing anyone. Its about making the economy and society work. Whats so hard to get?

I did enjoy this post,It was an interesting perspective.

Also, I am not going to reply to all the posts here,I just wanted to generate some debate on the matter and hear some different opinions on it.

[Phier]

It was never 90% because there were massive, titanic loop holes.

For many rich people the Reagan tax cuts were actually tax increases. Whole industries that depended on tax shelters were hurt badly.

This was a good thing btw. The problem is that people who were kids or born after that don't understand anything but the 90% on paper.

[King Gambrinus]

It was never 90% because there were massive, titanic loop holes.

For many rich people the Reagan tax cuts were actually tax increases. Whole industries that depended on tax shelters were hurt badly.

This was a good thing btw. The problem is that people who were kids or born after that don't understand anything but the 90% on paper.

The problem with loopholes is that only those who can afford accountants can exploit such loppholes, creating an unfair tax system.

[Phier]

The problem with loopholes is that only those who can afford accountants can exploit such loppholes, creating an unfair tax system.

Well ya, thats why I said it was a good thing.

It just means you can NOT compare tax rates pre-regan from tax rates after. My uncle was in the 75% tax bracket in the late 70's and hes still pissed at the Regan tax cuts.

[I WUB PUGS]

The problem with loopholes is that only those who can afford accountants can exploit such loppholes, creating an unfair tax system.

Or you take a couple accounting classes and read up on the tax code.

Then again accounting is boring and it is generally easier to just accept that you are getting screwed. However, clearly if I as a wealthy person can employ an accountant for $10,000 to manage my extensive accounts along with their other clients, and that accountant can save me $11,000 or more................it's a no-brainer.

But for us simple folk, learning how to keep our own books and do our own investing is one of the best self-improvements we can do.

But! Your basic deductions normally cover most people anyway so why bother if you have just enough ambition to keep you firmly in the bottom half of the country?

Also small business filing exclusively under the personal income tax is a myth, or they're retarded. There are a number of options available to individuals to avoid being crushed by taxes. Besides if you're raking in 250k in actual profit from a small business, you are doing pretty well and if you aren't looking to expand then, personally, I think something is wrong with you.

The big hype in the States is about all the rich people making money off of dividends and capital-gains, which honestly, we already have a system in place and I don't hate it, rich people like Romney just need to shut up and quit letting the little people know that they pay nothing in taxes because they have long-term investments.

These rich people aren't moving money in and out of the market all day everyday, they aren't playing on bubbles, they're making money long term. If you sell a position that you've held for less than a year, you get hit with the income tax rate, plain and simple. That means if I sell and make 300k on an investment, I'm going to get hammered with taxes, so most don't do that. After a year, if I sell, taxes go down substantially which is how the wealthy like Romney pay nothing in taxes while making boatloads of cash. Fair trade-off. Be a steadying force in the market; pay less taxes.

And to me, that's okay because they are locking in long-term investments that DO help the economy.

It's not surprising to me at all that Americans freak out about taxes on the wealthy because most Americans don't understand how to have savings or even balance a check book. We can't live within our means, we are addicted to credit, somehow a credit score over 700 is impossible for many Americans, etc etc. How dare someone earn $10,000 a month tax-free while not having an actual job!!! Never mind the simple fact that they planned accordingly and paid taxes before and EARNED that tax free income.

Just how clueless are your average Americans? Simple question:

If you win the lottery tomorrow, and I'm talking little lotto like say, $5,000,000 in cash after taxes. Do you think you could retire the next day and do so with a substantial income every month?

If you answer "no" then you would be just like most people I know.

If you answer "yes" then you understand where I'm coming from.

Never mind, it's much better to engage in class warfare. The wealthy have no defense. How dare they have more than I do!

[Sir Adrian]

Even the most hardcore socialist system would not be so courageous/stupid as to overtax the rich in such a manner, let alone "wild capitalism" America.

Michael Moore usually says some pretty sensible things, but this made facepalm like a pro. Why? Two reasons.

1. Like most economic indicators the tax rate does grow in a straight line, but it is in fact a downwards facing curve (also known as the Laffer Curve - see spoiler). What does that mean? It means that you can only collect so much taxes. Once you pass that "saturation" (as i like to call it) point with each t% increase of the tax rate you revenues will decrease by (1 - t)/t.

Spoiler for Laffer Curve: 

Why is that you might ask. Simple. When you increase the tax rates the private sector will have less cash available for investments, which translates in reduced profits. Lowered profits automatically translates in less government revenue.
Lowered profits also will lead to salary/wage cuts and increased prices.
This in turn will have two effects:
- it will first and foremost lower consumption (which automatically less government revenue from VAT and luxury taxes). As every freshman knows consumption is the basis of economic growth, and it will be until we'll be able to come up with a better system, and decreased consumption can lead to economic stagnation or even economic recession (i might be oversimplifying here), which in turn will cause profits to drop further and plunge the economy into a vicious circle with no way to escape it.
- secondly salary/wage drops will cause a sharp decrease in income tax and social security contributions, which will mean less money available for pensions, hospital care, unemployment support, etc. etc. So the government will have less cash but its expenses and obligations will stay the same. What can the government do in this situation? Borrow heavily, impose austerity measures or take money away from other areas to cover the social security deficit. Needless to say each option will have a negative impact on the economy.
Just take a look at post 1990 Romania or post 2007 Greece if you want to see what effects a poorly managed social security system can have on an economy.


2. Then there's a tiny little thing called fiscal equity. What does this mean? It means that all social categories should be taxed fairly. Overtaxing the rich will cause them to look for ways to avoid paying taxes, thus causing an increase in tax evasion, corruption and the "black economy". I hope you can see why this will lead to economic problems and lowered government revenue.



The 90% tax rate Michael Moore was talking about was probably the tax on war profiteering (a tax placed on those who became rich as a result of WWII). unlike a 90% tax on the rich, a 90% tax on war profiteers will have little negative effets on the economy because you are not taxing and entire social category but only a few individuals, and you are not taxing business owners and investors but rather various "leeches" who got rich by conjecture.


TL;DR a 90% tax on war profiteers is normal, and ca lead to economic growth. A 90% tax on the rich equals economic suicide in the short and long run.

[Thorn777]

1.Laffer Curve has some merrits, but not to extend you, many more influential people, and Laffer himself have made it out to be. Thats been firmly debunked.

2. The 90% was not just on war profiteering. It was essentially about any unproductive-income.

[The spartan]

Also like to point out, 90% tax doesnt mean the government just takes 90% of your income...it works it brackets, dog.

[Mangalore]

This is a cliched argument from the likes of Michael Moore.That after WW2 Americans in the top income bracket were taxed 90% of their income.Apparently America was able to build Schools,Hospitals,Roads and Homes etc with the Money.Its often cited as a example of when high taxation worked, so much so,that the very Nation fighting Communism though it O.K to level such excessive Taxes,and that we should return to such a time.I having read about it believe it to be a myth.The main rebuttals to the Myth are outined quite simply below by this Blogger:http://almostclassical.blogspot.co.u...rate-myth.html
...

It's not really a myth when they actually taxed 90%. That your taxed income is not the same as your income is what everyone strives to do who ever had to fill out tax forms.

The essential goal of a 90% tax _is_ to make rich folks use their money on stuff aka turn it into non taxable income by making investments and using their money. They are thus creating a stimulus as it is not profitable to sit on the money aka tax deductions for travel costs, meals, etc. etc. means you have to expend your money on goods and services or otherwise put it into your taxed income. Goods and services other people provide.

It creates a cashflow even if it doesn't change relative wealth distribution.

[sephodwyrm]

Not true, because the richest Americans weren't emigrating.

[Phier]

700 is impossible for many Americans, etc etc.

780

And to think I tended to not pay my 18% credit card in college because I was too lazy to remember

Funny thing is I'm not good with money, I just never bought what I couldn't afford.

[King Gambrinus]

780

And to think I tended to not pay my 18% credit card in college because I was too lazy to remember

Funny thing is I'm not good with money, I just never bought what I couldn't afford.

I think that's pretty much the golden rule, or at least that's how I was brought up anyway. It's just some people don't understand when their credit/debit card says they can have 2000 quid to spend. It's a cultural thing...I don't blame them.

[I WUB PUGS]

780? I know you're better off than me and I'm still not that far behind you. Think I had a 760 when I bought my new car in 2010. We may be equal now.

Interesting note however. My father refused to co-sign on any credit for me when I was in college (doing so with my sisters didn't work out so well for him). As a result, I had zero credit history even up to 2006. Washington Mutual refused to even give me a $500 credit card.

6 months later I switched to Navy Federal to consolidate my wifes crap (so bad) and mine. Navy Fed knew about my income since I was in the Marines and they gladly extended $1000 on a credit card and also refinanced my wife's car loan. A year later I was able to take out a consumer loan. A year after that I took out another. A year after that I got approved for a new car loan with a sub-4% rate that no dealership could match and now I'm looking perfectly fine for buying a house.

I was able to do all of this by making my payments on time. Granted, I'm not so sure I'd be looking so hot had I taken up those 25% APR credit card offers back in college.

I'm not the best with money either, but man, I had Marines that would just join the unit and buy Mercedes and like making $800 every two weeks is somehow ballin'. Yeah, Best Buy Card, I need that! I can buy this TV on credit! Hell yeah! Next thing you know you've got 20 year old kids with 50k in consumer debt. No wonder deployments are so popular...

[MathiasOfAthens]

The ing myth is that the right thinks the left wants to return to 90% tax rates or 60% or whatever. We are comfortable with just increasing the rate to between 30% and 40%.

[MathiasOfAthens]

780

And to think I tended to not pay my 18% credit card in college because I was too lazy to remember

Funny thing is I'm not good with money, I just never bought what I couldn't afford.

Maybe thats easy for you to say but millions of Americans work min wage jobs earning barely enough to pay the rent... point of this response is to highlight the need for companies to increase the min wage to something livable like 13 dollars an hour which is much lower than most european countries.