The Flat Tax Is Not Flat and the FairTax Is Not Fair

[Kevin_Kennedy]

Our current income tax system, inaugurated in 1913 with the adoption of the 16th Amendment, began with a 1 percent tax on taxable income above $3,000 ($4,000 for married couples). A series of surcharges of up to 6 percent were applied to higher incomes, with the maximum rate being 7 percent on taxable income over $500,000. Less than 0.5 percent of the population ended up paying income tax.

From these humble beginnings, the income tax soon blossomed, thanks to World War I, into a tax with a minimum rate that doubled and a maximum rate that reached 77 percent on income of over $1 million. The rates did not fall significantly until 1925. In the middle of the Great Depression, the top rate rose to 79 percent. During World War II, the tax rate for those in the highest income bracket reached an astounding 94 percent. The Internal Revenue Code of 1954 resulted in 24 brackets with rates ranging from 20 to 91 percent. The top rate remained at 91 percent until 1964. Under the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986, the top marginal tax rates were lowered to 50 and 28 percent respectively. The Economic Growth and Tax Relief Reconciliation Act of 2001 established the current tax brackets of 10, 15, 25, 28, 33, and 35 percent.

The Flat Tax Is Not Flat and the FairTax Is Not Fair - Laurence M. Vance - Mises Institute

 

[Iriemon]

Our current income tax system, inaugurated in 1913 with the adoption of the 16th Amendment, began with a 1 percent tax on taxable income above $3,000 ($4,000 for married couples). A series of surcharges of up to 6 percent were applied to higher incomes, with the maximum rate being 7 percent on taxable income over $500,000. Less than 0.5 percent of the population ended up paying income tax.

From these humble beginnings, the income tax soon blossomed, thanks to World War I, into a tax with a minimum rate that doubled and a maximum rate that reached 77 percent on income of over $1 million. The rates did not fall significantly until 1925. In the middle of the Great Depression, the top rate rose to 79 percent. During World War II, the tax rate for those in the highest income bracket reached an astounding 94 percent. The Internal Revenue Code of 1954 resulted in 24 brackets with rates ranging from 20 to 91 percent. The top rate remained at 91 percent until 1964. Under the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986, the top marginal tax rates were lowered to 50 and 28 percent respectively. The Economic Growth and Tax Relief Reconciliation Act of 2001 established the current tax brackets of 10, 15, 25, 28, 33, and 35 percent.

It's astounding to me, listening to the current shrill about the possibility of raising the top tax rate from 35% to 40%, that not that long ago we had top tax rates of 70% and exceeding 90% in this nation. And this during the 50s and 60s, when economic growth was in real terms unmatched by anything since.

Kind of puts a big "?" on the supply side theory about lower taxes and stronger economic growth; at least when you are talking about top marginal rates.

 

[Agnapostate]

...And the Mises Institute deserves not the semblance of legitimacy, considering that the Austrian school is an entirely marginal one that has contributed effectively nothing to economic analysis (instead preferring to selectively quote the Chicago school, though that school recognizes the folly of support of free markets), as a result of their hatred of empirical evidence. The Austrian school thus stands to discredit other heterodox schools at a time when others will turn to them after rejection of orthodox economics.

 

[editec]

Well I think the guy did a marvelous job of dismantling the goofy notions that FLAT taxes or VAT taxes or PER CAPITA taxes make ANY sense.

But here's what he did NOT do.

Explain to any of us how we could HAVE A NATION without having a government which takes some part of the national product to function.

It is all well and good to SAY that you want to reduce government spending.

EVERYBODY would like to have a cheaper government.

The question he did not address was WHAT PARTS OF GOVERNMENT would HE eliminate?

And, let us assume that he had done that, shall we?

Do any of you think he would have done the anaylsis of the OUTCOME of those reduced spending policies?

If the Mises institute ever bothered to take their analysis BEYOND their "and then we'll live happily ever after" conclusions, and really LOOKED at the outcomes of simply slashing the budgets, THEN I MIGHT begin taking them seriously.

This is a perfect example of the problem with linear thinking, folks.

The problem is taxes, ergo the problem is government too much of the GDP, ergo we simply cut government spending.

End of analysis.

That's linear thinking at it finest.


Say what?!!

No, you can't just tell me that "then we'll live happily every after" because I KNOW god damned well that is NOT what happens when we make such drastic shifts (shifts that might be necessary, but drastic shifts nevertheless). in how our society works.

I want to SEE transtional analysis of what happens when the government stops taking (and spending) so damned much money.

I want an in depth study of what the outcomes of such a move would be.

And that is never there, when these people talk about their fairy tale Randian world solutions, folks.

It's just never there.

All they ever say is then everybody will have more money to spend.

Nonsense.

If society is falling apart because the transition is SO DRAMATIC?!

Believe me, everybody will not have more money to spend. Nobody will be going to work would be my guess, in fact.

I will remind you people over and over and over again that there was a time when the government (which was facing a completely different world with a much simpler set of problems) did NOT tax workers or businesses.

And how did that government pay for itslf?

Do any of you know?

Perhaps you should do some simple historical research to find out.

The Misesians won't like what they discover though.

 

[garyd]

Trouble is none of what was stated dismanteled anything regarding flat taxes or vat taxes. What economic growth there was in the fifties and early sixties and there wasn't much was largely driven by government spending on military hardware roughly 65% or more of the federal budget at the time and a GI Bill driven housing boom, and even with that it was essentailly stagnant hence the Kennedy Bill. And by the end of LBJ's six years the economy was thoroughly in the tank where it remained essentially until Reagan. The greatest economic growth in terms of GDP occured before we even had an income tax.

 

[Agnapostate]

There was certainly a decline in world growth following the abandonment of Bretton Woods, and Reagan's military Keynesianism certainly played a further role...not least of which was illustrating the clear conflict between his stated free market rhetoric and his actual policies.

 

[garyd]

Reagans economic policies were never acted on after the initial tax cuts of 1981 which did not go into effect until 1982. The Congress controlled by Dems precluded any real economic changes of the sort that were needed and constantly acted to roll back the original tax cuts culminating in the tax increses in BushI's second term closely followed by an economic slowdown that along with Perot candidacy gave the Presidency to Bill Clinton the economy remained in the doldrums until 1995 when the Republicans gained control of congress.

Reagans Military Keynesianism as you call it amounted to an increase of military spoending by not quite 1% of GDP and could not have had any real effect on the over all economy and that is of course assuming he got everything he wanted which he did not. What you are Missing here is that during the time period you are covering - roughly a decade 1971 to 1981 - Social spending rose from around 40% of the federal budget to aroud 67% of the federal budget and inflation got worse almost every year because of that. We are now beginning to repeat the errors of that decade and we will almost certainly pay the same price in unemployment, inflation and high interest rates once again.

 

[editec]

Questions for the Mises Institute crowd..

1. How much should the government cut the budget?

2. Specifically what need to be cut from what departments?

3. What are the outcomes of such such cuts on society?

4. What provisions will be made to mitigate those outcomes?

5. Where does the government find the money to pay its CURRENT debts (plus interest)