Tax History vs. Obama

Discussion in 'Congress' started by Navy1960, Oct 27, 2008.

  1. Navy1960

    Navy1960 Senior Member

    Sep 4, 2008
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    Thomas Jefferson once wrote regarding the "general Welfare" clause:

    To take from one, because it is thought his own industry and that of his father has acquired too much, in order to spare to others who (or whose fathers) have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, "to guarantee to everyone a free exercise of his industry and the fruits acquired by it."

    In October of 1929 the stock market crash marked the beginning of the Great Depression. As the economy shrank, government receipts also fell. In 1932, the Federal government collected only $1.9 billion, compared to $6.6 billion in 1920. In the face of rising budget deficits which reached $2.7 billion in 1931, Congress followed the prevailing economic wisdom at the time and passed the Tax Act of 1932 which dramatically increased tax rates once again. This was followed by another tax increase in 1936 that further improved the government's finances while further weakening the economy. By 1936 the lowest tax rate had reached 4 percent and the top rate was up to 79 percent. In 1939, Congress systematically codified the tax laws so that all subsequent tax legislation until 1954 amended this basic code. The combination of a shrunken economy and the repeated tax increases raised the Federal government's tax burden to 6.8 percent of GDP by 1940.

    Beginning in the late 1960s and continuing through the 1970s the United States experienced persistent and rising inflation rates, ultimately reaching 13.3 percent in 1979. Inflation has a deleterious effect on many aspects of an economy, but it also can play havoc with an income tax system unless appropriate precautions are taken. Specifically, unless the tax system's parameters, i.e. its brackets and its fixed exemptions, deductions, and credits, are indexed for inflation, a rising price level will steadily shift taxpayers into ever higher tax brackets by reducing the value of those exemptions and deductions.

    During this time, the income tax was not indexed for inflation and so, driven by a rising inflation, and despite repeated legislated tax cuts, the tax burden rose from 19.4 percent of GDP to 20.8 percent of GDP. Combined with high marginal tax rates, rising inflation, and a heavy regulatory burden, this high tax burden caused the economy to under-perform badly, all of which laid the groundwork for the Reagan tax cut, also known as the Economic Recovery Tax Act of 1981.

    U.S. Treasury - Fact Sheet on the History of the U.S. Tax System

    History is an interesting thing, and it's wisdom is quite clear IMHO. The 20th Century is replete with examples of raising taxes to increase revenue during economic downturns and it's results as well. We sit here day after day on one side or the other of this issue, some call it " time for the wealthy to pay" and still some call it "wealth redistribution. However, you slice it when you raise taxes on any income group while increasing spending and not reducing the deficit you will add one more page to an already failed history. One more thing to consider, many people point to Bill Clintons tax increase as an example of how that stimulated the economy, which I find as a ironic considering the name of that tax increase was "the deficit reduction act" .

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