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  • ray858945 ray858945 Nov 22, 2012 6:03 PM Flag

    The Math of Taxes

    Under the old math, higher tax rates meant more tax collections.

    Under the new math, lower tax rates mean more tax collections.

    A hundred years ago, the old math worked. The first income tax in 1913 had a top tax rate of 7 percent, but that was quickly increased to 73 percent to pay for World War I — we paid for wars back then — and tax collections rose dramatically.

    During the Roaring Twenties, tax rates were cut to 25 percent (hmm, Romney’s proposed rate). Government revenues declined 70 percent. The nerve of those times.

    When revenues dropped by half in the Great Depression, Republican President Herbert Hoover raised the top rate to 63 percent. Revenues doubled over the next four years. After spending massively on stimulus efforts that cut unemployment 23 percent to 17 percent, President Roosevelt, a very wealthy man himself, increased the top rate to 79 percent in 1936, an election year. He still won by a landslide. In 1937, tax collections rose almost 40 percent, but unemployment also inched up to 19 percent.

    World War II led to 94 percent rates — remember, we paid for wars back then. Revenues grew more than six-fold from $7 billion to $45 billion. The old math worked. Over the next 40 years, government raised and lowered rates depending on national needs. Even in the 1970s, we increased taxes to pay for the Vietnam War.

    President Reagan embraced the new math and said that lowering taxes would increase government revenues. Voters like lower taxes, so they voted for him. He also convinced us that the government is the enemy, but that’s another story.


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    • The graduated income tax was conceived as a primary instrument for use to destroy productive and influential people known as the middle class. Read H. G. Wells' book "Anticipations ..." published in 1901. Why would anyone want to do that? Wells explains why. A very few people are entitled to rule, and they should be able to return to the historic model of two classes - escaping the dictatorship of democracy imposed upon them by that great grey mass of people who had upset the old stable system of rulers and slaves. The book made Wells an intellectual rock star. Teddy Roosevelt invited him to the White House as honored guest. Franklin and Eleanor Roosevelt invited him for extended visits with them and the Brain Trust, and Wells praised them highly, saying the Brain Trust were the kind of men who would be able to take "full power." Unless you read Wells' book (online at Univ. of Chicago library), you can't imagine what Wells and the ruling elite had in mind for "unnecessary" people after the "new republic" was achieved.

      In 1921, the Secretary of the Treasury was Andrew Mellon, a man far wealthier than Franklin Roosevelt. Mellon proposed cutting income tax rate from a maximum of 73% (plus 4% basic tax on all income) to no more than 40% top rate. Senator LaFollette of Wisconsin called for Mellon to resign. Mellon was able to push through a cut to 50% top rate. The tax rate cut produced sufficient increase in tax revenues (and growth in production) to provide a budget surplus. The surplus was plowed back into another tax cut, which produced another budget surplus. Coolidge was elected in a landslide in 1924. Mellon continued the rate cutting and budget surpluses through 1928, when the top rate reached 25% and the first $4,000 of income was not taxed at all. In those days, $4K would buy nearly 200 oz of gold, which would cost about $346K today.

      Coolidge could have been re-elected in another landslide, but he chose not to run again - possibly because he had learned of what the ruling elite planned to do to the country in 1929. With Coolidge bowing out, Herbert Hoover was nominated by Republicans. Hoover, like LaFollette, Teddy and Franklin Roosevelt, was a "progressive" who supported activist government and higher tax rates - i.e., the agenda of the ruling elite. Hoover didn't lift a finger to stop the rampant trading fraud on Wall Street which produced the Great Crash, then signed Smoot-Hawley Tariffs which reduced U. S. world trade by two thirds within 18 months and increased unemployment to 25%. Then Hoover put income tax rates back at the 1920 levels effective January 1, 1932.

      But all this is just history. Not as attractive as spinning stories that fit the ideology of one party or the other. Thanks for bringing up the subject.

    • Ray: I read your both writings. I think you can be very good HISTORIAN and can earn more money than in this crummy market.

      • 1 Reply to munirqasim42
      • mcmsbm Nov 25, 2012 9:59 AM Flag

        History is fun, but when fundamentals change, history has less significance... In the past, taxes were levied to pay for the cost of government. Now, there is no connection between tax revenue and the cost of government. Politicians spend with no acknowledgement of income/revenue. See absense of a federal budget over the past several high-borrowing years... Taxes are raised or lowered solely to fulfill social policy, social agendas.of people (some elected, many more appointed or employed) in Washington.

    • con't from above ...

      Reagan cut tax rates and revenues went up. Here’s a dirty little secret: Reagan increased taxes more than a dozen times and doubled the tax on capital gains. Tax collections remained 18 percent of GDP, the same as the Kennedy-Johnson-Nixon-Ford years. Reagan’s deficits – 4.3 percent of GDP – were the highest in US history except World War II.

      Reagan deficits crossed $100 billion for the first time ever, then passed $200 billion, and almost reached $300 billion. President George H.W. Bush called the new math “voodoo economics” and courageously lost his presidency with a tax increase he believed necessary to reduce the deficits he inherited from Reagan.

      President Clinton raised taxes to 19 percent of GDP, generated the nation’s only four-year streak of surpluses . . . and created 23 million new jobs.

      President Bush, the W, cut taxes, increased spending, and didn’t pay for wars. The Great Recession and tax cuts reduced revenues to 15 percent of GDP. Deficits exploded to $450 billion and eventually hit $1.4 trillion in his last year, the highest ever. Bush W’s tax cuts generated one (yes, One!) million new jobs in eight years. That’s the new math.

      The Great Recession unemployment rate is half the Great Depression unemployment rate. The Great Depression took 12 years to recover. Today we expect the economy to recover in one year.

      • 5 Replies to ray858945
      • OK, all you GUYS! Let's have some fun with this... how about a survey about our situation, relative to politics...Like State we live in, our age, gender/ethic, party registration, our voting habits (always, usually, sometimes, never - vote), our voting history (sometimes vote repub, but usually dem, or whatever), basic demographics...embellish as you wish, but hit the basics...I think it will give us all a new basis for discussion...I wish the entire country could do this. I think it would really help with the stalemate, to learn how similar we probably are. The rhetoric is awful :) I know most of you will not be honest,'s mine:



        white female

        Not declared

        always vote
        mostly dem...I did vote for Reagan (x 2), I might have even voted for Nixon...not sure about that (I was very young at that time)... and the first GB and a few local repubs.

        small business owner - professional, Architect (Architects are consistently among the most "respected" professionals, in public opinion polls, but are not compensated commensurate with our impact on society. Sorry, just a little soap boxing, there...btw, there is no "architect's union". Which I think is really a good thing (paren within paren is probably not right, but (how's that, for a dem voter to say it's great that the union isn't involved in Architectural Practice?))))

        Married, two daughters, two grandchildren...getting close to retirement, but not yet...not wealthy, but comfortable. (I do live in California, after all :)

        I, certainly, am not sure about this, but I think we are all very close together on important issue...we are just letting passion get in the way of rationality....AND our ability to communicate is "not-so-hot".

        I'm probably going to regret this...Diva

      • YOU miss some major points in your zeal for the Messiah. FDR tried what they are doing again now....and it extended the Big Depression for a dozen years. Those that dont learn from history are doomed to repeat it. Wise up.

      • Pretty funny Ray,

        You know I love you but your partisan "reporting" is almost as bad as the old Air America.(No, I stopped watching Fox News years ago, and yes conservatives have ready arguments to counter all of your talking what is your point?).

        I'm still reading you Ray, but with a big smile, and a shake of my head. Dec 6th is over, you can relax, the Republicans have been driven back into their caves....and News Flash...the Democrats won the election..... ;-). We've had enough "partisan speak", IMO, on both sides, to last at least 4 more years.



      • To cover current Federal expenders they would have to raise taxes to 24% of GDP. That is just federal taxes. The only other time it has been that high in the past was during WWII. Why do we need 6% of GDP more money ever since Obama was elected than we needed any other time in the past 50 years? Were we doing do bad before? Look what is happening to countries like Greece when they take such a large percentage of GDP out of their economies. The economy buckles and collapses and incomes for everyone plummet to where everyone suffers gravely. It would be one thing if there were no examples of this going on around us to observe so that we could be warned about what happens but that is not the case. Anyone who wants to know can see clearly what happens because there are examples of it happening right now. But you have to be willing to look and observe objectively. I know that may be asking a lot for some but really, it doesn't take all that much effort to just look at what is going on and recognize it for what it is.

      • Thanks for sharing Ray, I find this topic highly interesting.

        Sentiment: Strong Buy