Trickle Down and Tax Cuts

In 1921, when the tax rate on people earning more than $100,000 a year was 73 percent, the federal government collected a little more than $700 million in income taxes, of which 30 percent was paid by those earning more than $100,000. By 1929, after the tax rate had been cut to 24 percent on incomes higher than $100,000, the federal government collected more than $1 billion in income taxes, of which 65 percent was collected from those with incomes higher than $100,000.

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5 thoughts on “Trickle Down and Tax Cuts

    • Yes, I’m sure it was the tax cuts that caused the stock market crash that very same year—precipitating the subsequent depression.

      ‘Gotcha politics’ have become really boring. Progressives suck.

      • Tax cuts are stimulative, correct? Cutting taxes when the economy is strong, like 1997 or 1926 and 1928 lead to an overheated economy, which leads to a crash.

        That’s why it makes sense to save tax cuts for when the economy is weak. That’s one of the problems we have today. We could use a tax cut, but rates are already the lowest they’ve been in 50+ years.

      • Well, you’ve changed your point, but I’ll play along.

        Tax cuts are stimulative, correct?

        It’s not that tax-cuts are inherently ‘stimulative’, it’s that the government more often than not spends money in completely unproductive ways. And even when the money is spent productively, it’s often spent far less efficiently than would generally happen in the private-sector. However, this is a fact that we must simply accept, because some things are the role of the government. (I don’t want a private army. Nor do I want a private central bank.)

        Cutting taxes when the economy is strong, like 1997 or 1926 and 1928 lead to an overheated economy, which leads to a crash.

        ‘Overheated economy?’ … which leads to a crash? Say what?

        Look, the point of the article is to debunk the silly leftist talking-point (left over from the Reagan era) of ‘trickle-down’ economics. The point is that ‘trickle-down economics’ is a construct of the left-wing, a mis-characterization of the actual argument being made by proponents of tax-cuts.

        The argument (as borne out by the evidence) is that when taxes are lowered, revenues go up and the burden shifts to higher and higher brackets. Like now. As you pointed out rates are as low as they’ve been in 50 years and the top 10% of earners pay 70% of the income taxes.

        Answer this …

        How does raising taxes help the economy?

  1. Most people do believe that tax cuts are stimulative. I think it is a mistake to cut taxes when the economy is already strong – like during the Roaring 20’s or the Internet Bubble. It makes more sense to save them for the next downturn.

    I’ve looked at the numbers quite a bit and I find a slight negative correlation between tax revenues and tax cuts. For example, after the 1986 tax cut, revenues fell. After the 1993 tax increase, revenues rose.

    http://research.stlouisfed.org/fredgraph.png?g=bEs

    I think the biggest reason for the top earners paying such a large share of taxes is mostly because of the very high income disparity. (Another parallel with the Great Depression).

    But I do agree completely that raising taxes hurts the economy.

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