Guest Blogger Series: Should We Raise Taxes?
The following was written by guest blogger Marc Mallette whose blog is basicconservative.com:
The Historical Record
During a recent debate with some friends, I was presented with a very intelligent challenge:
How do you explain the 1990s — as a fluke due to the internet boom? Weren’t there more regulations and higher taxes on the wealthy and corporations then? Can you really just say “but that was a different time!”
I don’t understand the logic behind saying that IF we raise taxes back to that level everyone will suffer. Data that shows this has historically been true may exist, but I’m just not aware of it. Please let me know if there is anything except what you consider common sense telling you that’s the case.
I don’t understand the logic behind saying that IF we raise taxes back to that level everyone will suffer. Data that shows this has historically been true may exist, but I’m just not aware of it. Please let me know if there is anything except what you consider common sense telling you that’s the case.
Regulations
The question refers to both taxes and regulations in the 90s. There’s no question that both will have an impact on the business environment (see also:Why Government Decisions Matter).While it’s true that tax rates were higher then, that’s not quite the case for regulations. As I pointed out to my friend, the principal achievements of this administration have been huge regulatory increases–the Affordable Care Act, Dodd-Frank, the CARD act. The EPA this year has had to roll back its own implementation of new CO2 emissions rules because, by their own estimation, they would have to hire 230,000 workers to enforce them. Rather than admitting the new regulations are absurd, they simply decided to wait until 2016 to do it.[1] The FDA recently announced that it is reinterpreting a 1994 law in such a way that will add millions to the cost of doing business for an entire industry–possibly putting smaller companies out of the market. [2] [3]
This is a drastic change in direction compared to, really, any administration in the past 30 years. Even Clinton was caught up in a decades-long deregulatory wave (see Gramm-Leach-Bliley). [4] So yes, it’s clear in hindsight that the successes of the 90s were partially due to the tech bubble, but also due to the general reduction in government interference in the economy that started under Reagan and continued until the last couple of years, where we’ve experienced a major about-face.
Taxes
This brings us to the other half of the challenge, the question of taxes. If taxes were higher in the 90s and things were okay, what’s the harm in raising them back to those levels now? Why won’t we still be okay?
Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009
Here’s what I found. Income taxes have only gone up a handful of times in the past century, and for various reasons. There’s a spike for WWI, one at the outset of the Great Depression, another halfway through the Great Depression, then two more in generally healthy times–the 1945/51 range and the 1991/93 range. [5]At least on the surface, small tax increases during healthy economic times don’t seem to hurt the overall economy too much (the late 40s and the early 90s). And a temporary tax hike to pay for WWI apparently did no lasting damage. Let’s look closer at some of those big swings.
Everybody is familiar with the Great Depression. Less familiar is the post-WWI recession of 1920-1921. Despite its lack of popular recognition today, the recession that began in 1920 was rough. Various estimates of unemployment agree that there was a rise from 3% or less to as high as 8.7-11.7% at the peak. Industrial production fell 30%. Stock prices as measured by the Dow Jones Industrial Average fell 47%. [6]
The government’s response was summed up in an article by Thomas E. Woods, Jr:
Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923. [7]
Did we all catch that? This downturn was as severe as what we saw in 2007, as severe as the beginning of the Great Depression. Yet in less than two years, production had returned and unemployment was below 3%.There was another market correction at the end of that decade. Industrial production fell. In 1930, unemployment was approaching 9% again, and this time, the government intervened. Immediately, major new tariffs were instituted to protect American jobs (sound familiar?). In 1932, taxes went up on everyone, falling largely on the top earners–top marginal rate went from 25% to 63%, the estate tax was doubled, and corporate taxes went up slightly (sound familiar?). Through the rest of the decade, taxes were raised again every year or two. The appalling lack of recovery after 6 years led to another large tax increase on the wealthy in 1935–raising the top rate from 63% to 79%. The stagnant economy responded by dipping back into recession though 1937 and 1938. [8] [9] [10]
Throughout the decade, unemployment stayed close to 15%–peaking much higher, around 25% in 1933. Despite massive government intervention and hiring, this depression simply would not end the way others did before and since.
Let me try to bring this all together. We have the following situations:
- Raising taxes and more government involvement during good times: little immediate economic damage (late 40s, early 90s).
- Cutting taxes and less government involvement during recession: quickly ending recessions (1920, see also early 80s and 2000-2001).
- Raising taxes and more government involvement during recession: longer, deeper recessions (30′s).
I’ve presented the historical record on two general directions the government has tried. Our choice is, do we want to take a whole decade to get back to prosperity, like in 1930? Or do we want to take only a year to get back to prosperity, like in 1920?
[1] http://mediamatters.org/research/201109270014 Media Matters’ take on this is, “No, the EPA is not hiring 230,000 workers.” However, even in their own story, they can’t present any evidence that goes any farther than saying, “The EPA’s new rule would require 230,000 workers to enforce, but now they say they’re waiting until 2016 to do it.”
[2] http://thegormleyfiles.blogspot.com/2011/09/fdas-plan-to-cripple-health-food.html
[3] http://www.naturalproductsinsider.com/topics/new-dietary-ingredients.aspx
[4]http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_ActFor the record, I’m not intending in this article to argue the relative merits of GLB or Glass-Steagall. I’m not comfortable with anything being truly too big to fail, but there’s interesting arguments on both sides of that issue. This is just to point out that Clinton’s record during the 90s is not exactly an island of Big Government surrounded by Bushes–he was deregulating too.
[5] I’m using the top marginal income tax rate for simplicity, but corporate and capital gains taxes generally followed the same curve:http://www.ritholtz.com/blog/2011/04/us-tax-rates-1916-2010/ The capital gains tax conspicuously breaks ranks throughout the 70s, and is raised in the late 80s as well, though offset that time by dramatic income tax cuts.
[6] http://en.wikipedia.org/wiki/Depression_of_1920%E2%80%9321
[7] http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b
[8] http://www.24hgold.com/english/contributor.aspx?article=2991697306G10020&contributor=Nathan+Lewis
[9] http://en.wikipedia.org/wiki/Great_depression
[10] http://www.infoplease.com/ipa/A0104719.html
Guest Blogger Series: I Am A Conservative Mother
This is the first article in our series of guest bloggers:
I don’t think a mother instinctually protecting her child is a new concept. It wasn’t until I became a mother that learning what I needed to protect my child from became clear. Usually protection comes in the form of keeping a child from running in the street, from touching a hot stove, or from getting hurt by a bully’s words. But protection from political mistakes that will bear real consequences, financial and moral throughout my child’s lifetime- that typically doesn’t spring to mind.
I know when most people think conservative mother, they think of Sarah Palin, an unapologetic conservative mother who showed America that women can be a driving force in the political arena.
This is NOT an article about Sarah Palin. This is an article about me and every other mom out there who is like me. One who loves her kids and will stand up for what they believe in without being fearful of the repercussions, social or otherwise.
I never really felt like I had the power to change anything. What difference can one voice, one vote, or one opinion make? I still often have my moments of feeling powerless to the troubling decisions being made around me. We elect our leaders for 2 or 4 year terms. If we don’t like what they’re doing on our behalf’s, we have to wait 2 or 4 years until we can get them the heck out of office! Thinking in these terms make me feel so helpless! Besides writing letters to our elected officials, what more can we do?
We can talk! Who do I go to when I need advice about a diaper situation, or a good recipe to use up my extra ground beef, or advice on a shopping trip? I turn to my fellow mothers. We are a huge consumer demographic. Think about the advertisements you see on a daily basis. More often than not, they are catered to the mother. By talking and getting involved in the political arena we are showing that WE want to make decisions for our children when it comes to political actions. We can be the driving force behind conservative initiatives and we will not be ignored.
I haven’t ever been the greatest Sarah Palin fan, but what I have appreciated about her is that she has stuck to her beliefs and has been confident about being a mother. When she first got tossed into the national spotlight so many people laughed about her, and I heard more negative remarks about her being a female and being a mother than about any other disqualifying aspect of her career. This is embarrassing for our nation, that we would preach equality and don’t follow through.
Women, we can change this nation to be what we want. And mothers, we can be a driving force in the political arena, just as much as we shape advertising in the consumer arena. Talk to each other. Get involved in the campaigns! Post your opinions on Facebook, or your Twitter, or amongst your mommy groups. Be polite and respectful of others, just as we teach our kids, but be unafraid to be who you are. You are raising the next generation and you have the power to shape how their country will treat them in the decades to come.
I am a conservative mother. And I will do what it takes to protect my child from societal financial ruin and moral decline.
Heidi
