No tea for me, thank you. Here's why, part one. The truth about taxes

>> Wednesday, September 28, 2011

You know, it's been a while since I did anything even vaguely political.

See, for a couple of years now, I've been hearing one of the all time stupidest, most nonsensical political cries ever. For the most part, I've ignored it, not even dignifying it with an argument because, hey, isn't it obviously stupid? And the people screaming it stridently were, far and away, some of the most idiotic people ever seen on camera who weren't headed off to rehab at that precise moment. Today, of course, we'd call them potential candidates.

When stupid people scream something, over and over, on the premise that the VOLUME of your message denotes its veracity, it's a waste of time to argue it. Logical is clearly not part of the equation.

However, recently, I've been seeing more and more of the same idiocy coming from people I normally consider intelligent (if occasionally misguided). And that's not good. If otherwise intelligent people are going to be swayed by the VOLUME=truth legions of dullards, at least on concepts that can be readily disproved with a tax table, a bit of history and a spreadsheet, either (a) they're only pretending to be intelligent or (b) they never really gave it a bit of thought. And this is important and deserves a bit of thought.

So, I'm going to address the ridiculous mantra: "Smaller government! Lower Taxes! Why haven't you fixed the job crisis!"

Here's the quick and dirty answer: because the first two preclude the third. You can either have government taking a hand in reducing unemployment or you can have a small government and lower taxes. Not both.

Why? Because government can only reduce unemployment two ways: by providing jobs directly and indirectly by spending money or by changing the environment in ways conducive to encourage those with money to provide jobs. To deal with the "Great Depression" the government did both, too slowly at first, because it seemed counterintuitive, but they did both and it worked. I'll explain why.

Actually, I don't have to explain the first part. FDR rolled out a huge number of projects, building roads, dams, schools, bridges, you name it, anything to give people a paycheck, a way for self-respecting folks to put food on the table. It hurts a self-respecting person not to be able to earn a living wage and the longer it goes on, the worse it gets. As a side benefit, we got a great system of highways, clean energy sources (dams) a great deal of other wonderful infrastructure that is finally starting to fall in around us. But I digress.

Now, there are those that have argued that federal jobs didn't get us out of the depression, that the fed government couldn't have put enough people to work to change things. Rather than federal jobs, WWII got us out of the depression. Admittedly, that had a huge impact, but before you sit smugly back having pulled one over on the Rocket Scientist, ask yourself one question: all that economic growth from labor shortages with men as soldiers overseas and all the need for tanks and ships and planes - who paid for that? Who bought the ships and planes and tanks? Who paid the men overseas wages to send home? That's right, the federal government. Still a jobs program, just on a whole different scale. The depression was broken with jobs from the federal government so it can be done (without requiring that level of government expenditure indefinitely). 'Cause it has.

But let's say that makes us a little scared. So scared, in fact, of debt that we cut government spending because we don't want more debt. Well, shit, it's no surprise that if you cut government funding, you'll lose jobs. People don't realize that there are teachers at every school because of federal funds, that we have more cops and more firemen and better roads and cleaner water and air because of federal funds and the salaries they pay. A huge portion of those cuts everyone's so eager for are jobs people desperately need, either jobs that won't come to be or jobs we now have that we won't. Might want to give that some thought.

But what can we do? We can't just build up debt impossibly! We've started two wars, and, rather than solve our problems, they've added to our debt but not our employment! What are we doing wrong?

I'm glad you asked. I'll give you a hint (how they did it during WWI and WWII). And, next post, I'll explain why the notion that lowering taxes increases employment is so inherently flawed and demonstrably wrong. With real math!

First fifty years of Federal Income Tax Brackets from Wikipedia who cites their source (in case you're afraid it's all lies).

Year $10,001 $20,001 $60,001 $100,001 $250,001 $500,001 $1,000,000
1913 1% 2% 3% 5% 6% 7% 7%
1914 1% 2% 3% 5% 6% 7% 7%
1916 2% 3% 5% 7% 10% 12% 13%
1918 16% 21% 41% 64% 72% 76% 77%
1920 12% 17% 37% 60% 68% 72% 73%
1922 10% 16% 36% 56% 58% 58% 58%
1924 7% 11% 27% 43% 44% 46% 46%
1926 6% 10% 21% 25% 25% 25% 25%
1928 6% 10% 21% 25% 25% 25% 25%
1930 6% 10% 21% 25% 25% 25% 25%
1932 10% 16% 36% 56% 58% 61% 63%
1934 11% 19% 37% 56% 58% 61% 63%
1936 11% 19% 39% 62% 68% 79% 79%
1938 11% 19% 39% 62% 68% 79% 79%
1940 14% 28% 51% 62% 68% 79% 79%
1942 38% 55% 75% 85% 88% 88% 88%
1944 41% 59% 81% 92% 94% 94% 94%
1946 38% 56% 78% 89% 91% 91% 91%
1948 38% 56% 78% 89% 91% 91% 91%
1950 38% 56% 78% 89% 91% 91% 91%
1952 42% 62% 80% 90% 92% 92% 92%
1954 38% 56% 78% 89% 91% 91% 91%
1956 26% 38% 62% 75% 89% 91% 91%
1958 26% 38% 62% 75% 89% 91% 91%
1960 26% 38% 62% 75% 89% 91% 91%
1962 26% 38% 62% 75% 89% 91% 91%
1964 23% 34% 56% 66% 76% 77% 77%

I want you to notice what the US used to do when they had wars to fund: yeah, they expected us to help pay for them. Even during (and after) WWII, the lowest brackets were paying higher taxes than our highest brackets today. Which is how they addressed the deficit problem as they put people back to work.

One more thing to notice. Higher tax brackets had a serious drop in percentage early on. Anyone else notice where? That's right, just before the Great Depression. Tomorrow, I'm going to show you why that might not just be a coincidence. Sharpen those pencils!


  • Shakespeare

    I'm with you. Washington, right before we left, cut all sorts of taxes and instituted a 75% requirement for any new bond or tax. And now their budgets are cut drastically, and everyone is moaning about cuts in programs and help for those in need. Why they don't see the connection between their own selfishness and the lack of help is beyond me.

    Willful ignorance? Sheer stupidity? Either way it pisses me off. I'm willing to spend a LOT to make sure others get the help they need.

  • Stephanie Barr

    So many people think tax money=handouts for the poor. It can be handouts, for people wiped away by tornados or floods, it can be money to ensure kids get food at school if nowhere else, but "entitlements" (other than social security and medicare) are a relatively small piece of the pie.

    The US Government is also one of the biggest employers in the world with ~2 million civilian jobs (not counting postal workers) + the military + 10X if not more so jobs for teachers, construction workers, manufacturers through Federal support funding and contracts.

    You start cutting funding, you're cutting jobs. A lot of them.

  • Stephanie Barr

    This comment has been removed by the author.

  • Stephanie Barr

    This comment has been removed by the author.

  • Project Savior

    One thing that those tax rates also show is how the US avoided the post-war recession by keeping the higher rates so we could put the returning vets to work building the Interstate highway system. An investment that lowered the cost of manufacturing, which increased jobs and wages for everybody paying back the higher rates. A Republican plan BTW, too bad we don't have any of those left.

  • Stephanie Barr

    In hindsight, it would be almost impossible to determine how much that investment has helped our country. We have many of the same opportunities today, not just repairing what was already built, but power generation (preferably green) and wireless accessibility, today's network.

    The latter will probably happen on its own, eventually, but we have an opportunity right now to drastically change how we view/use/generate energy in our country right now and we're squandering it.

    Other countries will be picking up our slack and, a generation or two from now, we very well might be wondering how we lost "first" place and realizing that the deficit is only one of many problems as we're left behind.

  • Anonymous

    Good post!  I've tried explaining the fallacy of tax reduction on the rich, er, job creators, but to little avail.  If I'm a small business owner, I'm only going to hire another employee if there's enough added demand for my product/service that I can afford the extra wages. 

    In fact, unless that new person makes more money for me than they cost me, I'm not hiring.  If the person does make me money, then I'll hire (means more profit). 

    The fact that my net profit (after paying wages and other expenses) might be taxed greater, or less, has NOTHING to do with whether there is increased/decreased demand for what I'm peddling. 

    So many people have been bamboozled by the whole "rich people are job creators" crap that it makes me sick every time I hear it repeated.  Sorry for the soapbox comment but people should take a course in basic economics before being allowed to vote. -Mike H.

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