Comment by btilly | Hacker News Reader

Comment by btilly | Hacker News Reader

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He pointed out how falling taxes on the rich correlated with a decline of the middle class. But that could just be coincidence.

I could point out that the largest expansion of the US middle class on record happened during the 1950s when the top personal income tax rate was over 90%. But that could just be coincidence as well.

I can point out that economic theory says that the economic impact of giving a person a dollar is directly connected to their likelihood of spending it. Since the rich are less likely to spend than the middle class and the poor, taxing them hurts the economy less than taxing anyone else. But once you descend into economic theory, everyone has a theory and an argument and you get a morass that normal people can't make heads or tails of.

I could point out that the Republican ideology that less taxes on the rich is always good has exactly no evidence supporting it. That's a very thin amount of evidence for the huge social experiment that we're currently running in this country. But once you descend into politics everyone already has their minds made up, so that's a lost cause.

All of which begs the real question; if the proposition is true, what evidence would suffice to actually convince people of it who are not already convinced?

The highest marginal tax rate was over 90%, but very very few people paid it. The tax code was loaded up with deductions, only direct compensation was taxed, and you could still easily convert wages into capital gains, which even in that time were significantly lower than wage rates.

The highest marginal tax rate was over 90%, but very very few people paid it.

More precisely, that was the marginal rate on income over $1 million/year. That would be about $5-6 million in today's dollars. Given much lower CEO compensation at the time, very few people encountered it. (And given those taxes, CEOs had less incentive to increase their salaries.)

The tax code was loaded up with deductions

Deductions have a tendency to accumulate over time. There were a bunch of deductions, but fewer than today.

only direct compensation was taxed, and you could still easily convert wages into capital gains

Theoretically true, but historically stock options were a much smaller portion of executive compensation than is the case today. See http://faculty.chicagobooth.edu/workshops/AppliedEcon/archiv... for a reference. (Incidentally their estimate is that only about 30% of the raise in CEO compensation is due to shifts in taxation policy.)

which even in that time were significantly lower than wage rates.

Massively so. If your ordinary taxes were over 50%, you could opt a 25% capital gains rate.

> More precisely, that was the marginal rate on income over $1 million/year

There has not been a bracket that high since 1941. http://www.hkmscpa.com/hist%20tax%20rates.htm#5

> (And given those taxes, CEOs had less incentive to increase their salaries.)

Of course. So they just gave themselves company cars and executive washrooms and million dollar desks.

> Deductions have a tendency to accumulate over time. There were a bunch of deductions, but fewer than today.

We got rid of a bunch in the early 80's. As a simple example, all interest (not just interest on primary housing) was deductible before then.

> but historically stock options were a much smaller portion of executive compensation than is the case today

I wasn't suggesting stock options. You don't have to rely on stock options to convert your salary into capital gains. If you were a doctor or a lawyer pulling down a lot of money, you just formed a company and left the money you weren't consuming immediately in the company's bank account.

That's not true.

Few people paid the 90% rate because the income bracket was so high that few people actually made enough money to fall into that bracket. The tax code had fewer deductions in the 1950s then it does now. All compensation was taxed back then, not just direct compensation. And it was much harder to convert wages into capital gains because they defined compensation much more strictly than they do now.

Capital gains rates were not lower than ordinary income rates, however, they used an "exclusion" system (similar to a deduction) that lowered the effective rates to what would be today's ordinary income rates.

Actually capital gains rates were actually lower for top income individuals.

More precisely, you could exclude half your capital gains income, or opt to have all of your capital gains taxed at an alternative rate of 25%. Most people would choose the former, but top earners could benefit from choosing the latter instead.

All compensation was taxed back then, not just direct compensation. And it was much harder to convert wages into capital gains because they defined compensation much more strictly than they do now.

This just isn't right. It was a significant change when, for example, the company car became a taxable benefit. Now employers can't pay for your schooling without paying taxes on it.

Almost everything (except for health insurance) gets taxed today.

None.

It took Western civilization something like 4000 years to write an equation for gravity, a phenomenon exemplified by millions if not billions of examples, each of systems consisting of one moving part. And that was just a description, Newton didn't begin to say _why_ it worked.

Economics necessarily depends on subjective judgment, which doesn't exclude rigor, but does include the possibility that any given set of experts is vulnerable to distortions in judgment from their own political preferences and personal ambitions.

Which means anyone leaving it to these experts is doomed. If you don't understand the basics of the methods and theories well enough to detect when things aren't adding up, you'll just go wherever they lead. And, surprise! most politicians, lacking understanding, discover that the most convincing economists happen to have the prescriptions most convenient politically. A review of the policy sustainability of the world's industrialized economies shows how well that model has worked out. Not convinced? Ask yourself how well Congress would do writing an operating system, an undertaking conceptually much simpler than managing the US national economy.

The problem isn't evidence, or even theory. It's the generally low level of understanding and the dishonesty of the discussion, on all sides.

But what if the root cause of a middle class decline is "routine" jobs being automated and outsourced? That's what my lay-reading of the Economist over many years tells me, though I'm not in the field.

In that case, tax policy may dampen or slow the decline, but won't fix it.

I agree with almost everything you say, but I think your first two paragraphs only imply that expansion is relatively insensitive to tax rates (so republicans' tax paranoia is unwarranted).

But is it good evidence that raising tax rates today would substantially improve the situation of the middle class? I don't think it is.

Increases in taxes tends to shift more and more activity into tax avoidance schemes rather that economically productive ones. See Parkinson's book "The Law and the Profits" for the classic treatment of this.

The fact that people try to avoid paying taxes does not mean that we should never charge them.

Also in recent decades the most successful tax avoidance system has been the systemic pressure from Grover Norquist and allies to reduce taxes at every opportunity and never, ever, let them come back up. We're now at historically low tax rates with a broken budget. Raising taxes can't solve the underlying fiscal problems by itself. But a refusal to do so does make them impossible to solve. (At least without a dramatic restructuring of our country that most would not like.)

http://begthequestion.info

Your pedantry is wrong.

Languages are defined by usage, not by some proscriptive description. It is true that "begs the question" is the name of a specific philosophical fallacy that has been discussed for millennia. However in English it is common to say "begs the question" where you mean "raises the question", and therefore that is acceptable usage among native English speakers. (I don't know where that usage came from, at a guess it is a shortened version of the phrase "begs us to ask the question". Anyways it is common usage.)

Now did you have a comment on the actual content of what I said?

The usage is correct. To beg the question is to ask the audience to accept a proposition stated in the question without having first provided evidence supporting the proposition. This is exactly what the OP does, where he states "if the proposition is true..."

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