[QUOTE=cheesehead;214042]I advocate returning US tax rates to what they were [U]during the longest economic expansion in U.S. history[/U]![/QUOTE]

Cheesehead, you ignore the fact that there were significant and long periods of economic expansion in the U.S. before the post-WW2 period, and long before there was an income tax, much less one with top rates exceeding 50%.

I'm going to challenge your claim that the high post-war tax rates helped *cause* the economic expansion ... I claim that it was the massive infrastructural spending of the late 30s and especially of the war which left U.S. industries as the most efficient in the world, together with the export boom resulting from most of the other major war powers having large parts of their infrastructure left in ruins, and an extremely strong work ethic (helped by the education benefits of the GI bill) among the returning troops which fueled the postwar boom.

The high tax rates certainly helped pay for things such as the war debt, the continued-large military and the Marshall plan, but please explain to how they "caused" the postwar economic expansion. The only argument that occurs to me is a second-order one, via the Marshall plan: By helping both the victors and vanquished rebuild more quickly, we helped create a booming export market for U.S. goods. Would a similar export boom have occurred even with lower taxes? I think it's quite possible (i.e. that we in the U.S. overestimate the efficacy of the MP) but we can never really know, since we can't rerun the experiment.

[quote=ewmayer;214074]Cheesehead, you ignore the fact that there were significant and long periods of economic expansion in the U.S. before the post-WW2 period,[/quote]I ignore nothing. I was citing the cite of the [URL="http://en.wikipedia.org/wiki/National_Bureau_of_Economic_Research"]National Bureau of Economic Research.[/URL]

Actually, if I'd been writing just off the top of my head, I [I]would[/I] have used the post-WW2 qualifier -- but it isn't necessary!

If you'll check [URL]http://www.nber.org/cycles.html[/URL], you'll see that it goes back to 1854, but March 1991 to March 2001 is still the longest-ever expansion listed, February 1961 to December 1969 was second-longest at 106 months, and no pre-WW2 expansion (war or no-war) was longer than 50 months.

Indeed, there have been [U]four[/U] post-WW2 expansions (and one including-WW2 expansion) that were longer than 50 months!

When were the longer-than-120-month expansions that you accuse me of "ignoring"? If you have pre-1854 information that has a sound basis, let us know.

[quote]I'm going to challenge your claim that the high post-war tax rates helped *cause* the economic expansion[/quote][U]I never made that claim![/U] (Why do you think I did?)

You missed that what I was doing was to turn the current conservative economic rhetoric on itself. I'm pointing out that, [U]by the conservatives' own repeated rhetorical logic about tax rates and economic expansion[/U], [I]they cannot object to rolling tax rates back to the Clinton years[/I]!

My indirect point is that current conservative economic rhetoric is not self-consistent -- because it's not based on sound economics, but instead has been crafted by think-tanks solely for political purposes!

(Personally, my choice of Clinton-administration rates as those to which taxes should revert is based simply on that they're only a few percentages higher than current rates, but that few percent would've kept our federal deficits much, much lower than they have been since 2001. The 1990s rates were much lower than 1950s-1960s rates, BTW.)

Cheesehead, I will challenge two major parts of your presumptious logic.

1. Your rationale seems to be that the U.S. went through a major economic expansion for 10 years and that during that time the tax rate was higher than it is today. I would use an analogy of a horse in a handicap race. If the horse is bigger and stronger, then it can carry more weight. Man-O-War carried some of the highest handicaps of any horse ever. He still won all but one race. Our economy has similarities in having grown vigorously in spite of the onerous handicap of high taxes.

2. I challenge the 'balanced budgets' statement because the budget was NOT balanced because of the tax rate. It was balanced because the strong economy was causing more total taxes - especially corporate taxes to be paid which resulted in the balanced budget.

I am neither democrat nor republican (nor any of the snide makeovers of those words). I would however point out that at the time you view as a period of exceptional prosperity we had a democrat for president and a congress controlled by republicans. I happen to see this as a very fortuitous circumstance since the combination tends to offset the effect of a single party having control of both which is what we have today. In other words, the more the politicians are at each others throats, the less likely they are to spend money we can't afford.

DarJones

[QUOTE=cheesehead;214078]I ignore nothing. I was citing the cite of the [URL="http://en.wikipedia.org/wiki/National_Bureau_of_Economic_Research"]National Bureau of Economic Research.[/URL]

Actually, if I'd been writing just off the top of my head, I [I]would[/I] have used the post-WW2 qualifier -- but it isn't necessary!

If you'll check [URL]http://www.nber.org/cycles.html[/URL], you'll see that it goes back to 1854, but March 1991 to March 2001 is still the longest-ever expansion listed, February 1961 to December 1969 was second-longest at 106 months, and no pre-WW2 expansion (war or no-war) was longer than 50 months.

Indeed, there have been [U]four[/U] post-WW2 expansions (and one including-WW2 expansion) that were longer than 50 months!

When were the longer-than-120-month expansions that you accuse me of "ignoring"? If you have pre-1854 information that has a sound basis, let us know.[/QUOTE]
I didn't claim any pre-WW2 expansions of specific exceptional length > 120 months, merely that there were robust multiyear expansions.

Also, it's interesting to observe that the post-WW2 period has one other feature which one could correlate with the "propensity toward economic expansion" - it represents the longest and largest [url=http://media.npr.org/blogs/globalpoolofmoney/images/2009/02/household.jpg]expansion in U.S. household debt[/url] (normalized by GDP) in the nation's history. (The pre-Great-Depression runup peaked at a similar magnitude but was followed by the most brutal deleveraging in U.S. history). So I can - and do - argue that e.g. the 1991-2001 "economic expansion" was in large part a debt expansion, i.e. it was unsustainable debt growth fueling that economic growth. This is of course exactly what Greenspanian Ponzi-conomics is founded upon.

So I concur with Fusion that the post-WW2 expansion leading up to the successive Greenspan credit bubbles (which are deserving of separate treatment) occurred *despite* the high tax burden ... in a sense that may have been a long-term negative, since the high taxes fueled the largest Federal-government growth spurt in U.s. history, and now we find ourselves saddled with all the bloated spending associated with that, nowhere near enough tax revenue or economic growth to cover the spending, and on the fast track toward a sovereign debt crisis. You are right in calling the Republicans out for their phony cries of "starve the beast" - but that doesn't make the aim of government-downsizing wrong, it merely makes them hypocrites.

[quote=ewmayer;214105]
So I concur with Fusion that the post-WW2 expansion leading up to the successive Greenspan credit bubbles (which are deserving of separate treatment) occurred *despite* the high tax burden ...[/quote]

That's bullshit. You are making a wild-assed claim based on your own opinion and with no supporting evidence.

And you owe cheesehead an apology for saying that he said that high tax rates cause economic prosperity when he said nothing of the sort.

First year econ. courses still teach: Correlation does not imply causation.

There is no evidence that low tax rates help economic prosperity. However, there is plenty of evidence that high tax rates do no hinder the same.

So let's try to improve the standard of the debate here, shall we?

[QUOTE=garo;214144]That's bullshit. You are making a wild-assed claim based on your own opinion and with no supporting evidence.[/quote]
My supporting evidence is the fact that numerous robust expansions occurred pre-WW2 without high tax rates, and while the 90s one may have been the longest, it was also accompanied by one of the biggest household debt expansions in history. I never said there is no other possible reading of the data, but "no supporting evidence"? C'mon. At least I'm not relying on pure rhetorical hyperbole like "wild-assed" and "bullshit" to try to convince. (Perhaps you've been reading too much Matt Taibbi ;)

[quote]And you owe cheesehead an apology for saying that he said that high tax rates cause economic prosperity when he said nothing of the sort.[/QUOTE]
What are you, his playground big-buddy? He wrote:

[i]"I advocate returning US tax rates to what they were [u]during the longest economic expansion in U.S. history![/u]"[/i]
No,he didn't say explicitly that said expansion was due to said tax rates, but by emphasizing the correlation so strongly, many reasonable persons would conclude that causality was being asserted. If there is no causal relation, what would be the point of raising the tax rates? (Especially since even team Obama is heavily in the we-need-consumer-spending-to-revive recovery camp).

If you think my reading of that sentence is so maliciously twisted as to be deserving of an apology, sorry, I completely disagree. But I'll tell you what - feel free to take a poll, asking readers if they think reading the above quoted sentence and taking away the impression that its author is implying causality is entirely unreasonable. If we get >= 20 votes (excluding me, you, fusion and cheesehead) and more than 2/3 say "unreasonable", I'll make a mea culpa.

Now, can we get back to the actual subject of the thread? Haven't read the econo-headlines yet today, but a glance at the DJIA daily chart has me wondering whether someone finally cried "Ponzi!" in the rigged casino that is Wall Street. Did the loaded dice lose their magnetism? Perhaps the rigged roulette wheel needs its bearings adjusted. Must ... hit ... 36,000 ... by ... midterm ... elections...

How about the expansions in the 1950s and 1960s when the top tax rate was 90%? I continue to call bullshit on vampire squids from von Mises :smile:

As for the rest of your post, I couldn't be bothered and take the xkcd defense.

[QUOTE=garo;214170]As for the rest of your post, I couldn't be bothered and take the xkcd defense.[/QUOTE]
Way to "improve the standard of the debate here", dude.

Garo in my opinion you used a tone that was to aggressive.

I do not think misunderstanding Cheasehead deserves an apology.

I also think that the argument by Fusion_power was that high taxes kill the economy. Cheasehead replied by giving examples where high taxes did not kill the economy. I think Ewmayer 's answer was just a bit enthusiastic (a priori no bad faith involved IMHO.

My opinion is that in the current system there is only one way to stop the Ponzi's from destroying the real economy : a tax on all financial transactions. Something like what Tobin propose some time ago. It would not hamper commerce especially if it was deducted from ordinary sales tax on goods, it would not hamper real investors if it was small. But the institutions just moving money around would be seriously hampered by it. (The annual volume of financial transactions in the World is 70 times the its annual GDP, about 4 10[sup]15[/sup] dollars.)

Jacob

Denninger has a post on today's "1987 revisited" [url=http://market-ticker.denninger.net/archives/2282-Mr.-President-Unplug-the-Fing-Computers.html]computer-amplified selloff[/url], which dropped the DJIA over 1000 points (> 10%) for, oh, about 5 seconds there. Not sure if the Dow "circuit breakers" kicked in at that point, or the operators of the gone-haywire HFTs pulled the plug. Nothing to see here, folks, just the highly efficient capital markets doing their usual job of helping the real economy flourish and run more efficiently, and stuff. We probably just need to divert a few billion in stimulus $ to help the poor overworked Wall Street prop trading desks buy even faster supercomputers for their high-frequency trading.

[quote=S485122;214182]Garo in my opinion you used a tone that was to aggressive.
[/quote]

Ok! I apologize to Ernst for using a needlessly aggressive tone. But I still think that the onus of proof is on those who claim that higher taxes are always bad for the economy.