The "growth economy" is not sustainable.

[Bonam]

That still requires a lot of pain to be born by the middle and lower classes.

Data I've seen shows that over the past several decades, tax burden on both the lower class and the "super rich" has diminished, while the tax burden on the middle class has risen.

Can't find the article I remember reading but here's some data that supports that that I quickly googled:

http://rationalrevolution.net/images/egtrra.gif

http://rationalrevolution.net/images/changeinfed.gif

Given that by all accounts the middle class has been diminishing, losing jobs, experiencing stagnant wages, etc, while both the very rich and the poor have been growing in numbers, I'd say the middle class is the one place you really don't want to be raising taxes even further, assuming you want to leave the middle class intact at all.

Edited September 7, 2011 by Bonam

[Bonam]

I dont know what the federal rates were 50 years ago. I am assuming they were less than 40% for the top income earners. Maybe I am wrong.

In 1961, the top federal income tax bracket was 91% (down from a high of 94% at the end of WWII):

http://www.taxfoundation.org/publications/show/151.html

[dre]

I don't think examples from the bygones days when almost all global GDP was produced in wealthy countries are useful. Times have changed. The best way to promote growth is to close the gap between spending and revenue by spreading the pain across the entire economy.

The problem is we have already GUTTED tax rates for the rich. In the US theyve slashed the rates over and over again administration after administration. The unemployment rate doubled.

The reality is theres very little linkage between tax rates and economic growth unless the rates are extreme and start getting close to 0, or 100%.

Theres no consistant correlation between tax rates and economic growth.

In any case... we have a graduated income tax formula... and the rates should be raised in ALL BRACKETS in proportion to the graduated formula until our spending is funded. Theres no way that we are going to make the tough choices to spend less if we just borrow the money and people dont feel it hit them in the wallet.

[dre]

In 1961, the top federal income tax bracket was 91% (down from a high of 94% at the end of WWII):

http://www.taxfoundation.org/publications/show/151.html

There was fast economic growth back then too. Not because tax rates were either high or low... but because there was an excess of skilled workers after the war ended.

In 1964, federal taxation as a share of the economy stood at 17.5 percent, while unemployment was at 5.2 percent. That year, income taxes were slashed, lowering the tax rate in 1965 to 17 percent of the economy. Unemployment dropped as well, to 4.5 percent.

But then tax levels rose sharply, to 19.7 percent of the economy in 1969, while unemployment fell steadily, to 3.5 percent.

In 1981, President Ronald Reagan again slashed taxes. Taxation fell from 19.6 percent of the economy that year to 17.4 percent in 1983. The unemployment rate, however, rose over that period, from 7.6 percent to 9.6 percent. By 1989, taxation had drifted upward again, to 18.3 percent of the economy, but unemployment had fallen to 5.3 percent.

[Bonam]

In any case... we have a graduated income tax formula... and the rates should be raised in ALL BRACKETS in proportion to the graduated formula until our spending is funded. Theres no way that we are going to make the tough choices to spend less if we just borrow the money and people dont feel it hit them in the wallet.

I'm not sure if that is necessarily a valid argument. Presuming that you are talking about the US here (since Canada's deficits in recent years have been small and not a big deal), there is a strong disconnect between what the voters want and what politicians in Washington do. The fact that higher taxes to fund spending would spread pain around and make people "feel it in the wallet", still doesn't mean that politicians would have the will to cut entitlement programs or other major expenditures. Often, no action at all can be taken due to political gridlock.

[TimG]

Data I've seen shows that over the past several decades, tax burden on both the lower class and the "super rich" has diminished, while the tax burden on the middle class has risen.

The charts are talking about ~1% shifts. I would say that suggests the relative contributions are fairly stable and you are looking at noise.

[Bonam]

The charts are talking about ~1% shifts. I would say that suggests the relative contributions are fairly stable and you are looking at noise.

http://rationalrevolution.net/images/fedtax04.gif

Still noise?

[TimG]

In any case... we have a graduated income tax formula... and the rates should be raised in ALL BRACKETS in proportion to the graduated formula until our spending is funded. Theres no way that we are going to make the tough choices to spend less if we just borrow the money and people dont feel it hit them in the wallet.

I believe that was my point. Spread the pain. A 1% increase on the middle class will raise as much money as a 2% increase on the rich (or whatever the actually numbers work out to - my point is applying a progressive formula will raise the required money).

That said, I think it is a waste of time to talk about tax increases until there is an adult conversation about entitlements.

[dre]

I believe that was my point. Spread the pain. A 1% increase on the middle class will raise as much money as a 2% increase on the rich (or whatever the actually numbers work out to - my point is applying a progressive formula will raise the required money).

That said, I think it is a waste of time to talk about tax increases until there is an adult conversation about entitlements.

As long as bond investors pay for those entitlments instead of taxpayers dont expect that adult conversation to happen.

[Bonam]

There was fast economic growth back then too. Not because tax rates were either high or low... but because there was an excess of skilled workers after the war ended.

There still is fast economic growth, it's just global rather than being confined to the West. Western corporations are still job creation machines, just they're creating those jobs elsewhere because labor there is cheaper.

I don't think an "excess" of skilled workers creates economic growth. Too many skilled workers just means they have to take jobs they are overqualified for since by definition an excess means more workers than jobs.

The ultimate and overwhelming driver of economic growth is technological progress, and that continues apace, reliable as ever.

[TimG]

Still noise?

Not if you go back to Bretton Woods days. But since 2000 the rich have see ~4% decline on 30% while the the middle has seen a ~2% decline on 15. In percentage terms it is about the same reduction.

[dre]

There still is fast economic growth, it's just global rather than being confined to the West. Western corporations are still job creation machines, just they're creating those jobs elsewhere because labor there is cheaper.

I don't think an "excess" of skilled workers creates economic growth. Too many skilled workers just means they have to take jobs they are overqualified for since by definition an excess means more workers than jobs.

The ultimate and overwhelming driver of economic growth is technological progress, and that continues apace, reliable as ever.

The ultimate and overwhelming driver of economic growth is technological progress

Which also comes from having an educated/skilled workforce. Youre right "excess" was the wrong word to use.

[TimG]

As long as bond investors pay for those entitlments instead of taxpayers dont expect that adult conversation to happen.

It is bloody ponzi scheme.

What scares me is the southern european countries owe eurpoean banks over $2 trillion.

If the southern european countries default.

Europe collapses from bank failures.

Edited September 7, 2011 by TimG

[jacee]

Shouldn't we be focusing on wealth and assets as well as income?

And let's face it, the only stats we'll ever find will be for reported wealth, assets and income.

Much of the transfer of public wealth and assets to the superrich from the rest of us may not even be visible to the naked eye. It's somewhat surprising that we can see it at all.

Edited September 7, 2011 by jacee

[Bonam]

Shouldn't we be focusing on wealth and assets as well as income?

Why? Because we should plunder people's assets as a way of paying off the debt?

[CPCFTW]

Shouldn't we be focusing on wealth and assets as well as income?

And let's face it, the only stats we'll ever find will be for reported wealth, assets and income.

Much of the transfer of public wealth and assets to the superrich from the rest of us may not even be visible to the naked eye. It'4omewhat surprising we can see it at all.

Let's face it, your problem is you seem to think the rich took your wealth rather than earning theirs. Most of the wealth in the Western world was earned. If you want to steal it, then just come out and say it rather than playing the victim.

Edited September 7, 2011 by CPCFTW

[TimG]

Why? Because we should plunder people's assets as a way of paying off the debt?

Just default on government bonds. It amounts to the same thing.

[Bonam]

Just default on government bonds. It amounts to the same thing.

Could happen eventually. Some countries have done it with seemingly few (if any) long lasting ill effects. Of course, the US doing it would likely send the world into a few years of severe recession, but it would likely be beneficial for the US to wipe debt clean off the books like that. They should wait until the debt burden is much higher though if they want to proceed with a plan like that. The US could conceivably continue on until debt is around 3-5x gdp (rather than 1x as it is now) before resorting to that.

[TimG]

Of course, the US doing it would likely send the world into a few years of severe recession, but it would likely be beneficial for the US to wipe debt clean off the books like that.

The US/EU have set the precendent for defaults. The IMF comes in and dictates massive cuts to services and hikes in taxes. By the time the US runs the debt up to 3x GDP the Chinese will be running the IMF and will demand the same terms that the US demanded of other debtor nations in the past. It would not be pleasant for the US.

[jacee]

There still is fast economic growth, it's just global rather than being confined to the West. Western corporations are still job creation machines, just they're creating those jobs elsewhere because labor there is cheaper.

I don't think an "excess" of skilled workers creates economic growth. Too many skilled workers just means they have to take jobs they are overqualified for since by definition an excess means more workers than jobs.

The ultimate and overwhelming driver of economic growth is technological progress, and that continues apace, reliable as ever.

Then there's again the dilemma posed by the op

The growth economy is not sustainable.

[dre]

Could happen eventually. Some countries have done it with seemingly few (if any) long lasting ill effects. Of course, the US doing it would likely send the world into a few years of severe recession, but it would likely be beneficial for the US to wipe debt clean off the books like that. They should wait until the debt burden is much higher though if they want to proceed with a plan like that. The US could conceivably continue on until debt is around 3-5x gdp (rather than 1x as it is now) before resorting to that.

Problem is you cant tank your own bonds unless you have a balanced budget unless you wanna close up shop. The other problem is that more than 1/2 of those bonds are held by US Citizens, US state governments, and US municiple governments. Others are held by countries like Japan and China and oil exporting nations that account for a huge portion of Americas trade and commerce.

[Bonam]

Then there's again the dilemma posed by the op

The growth economy is not sustainable.

I disagree with the premise that we are soon to be limited by fundamental resource shortfall. We have barely begun to tap the available resources.

[TimG]

Then there's again the dilemma posed by the op. The growth economy is not sustainable.

Sure it is - if we can get off the debt fuelled binge we are on now. The problem with global trade right now is driven entirely by irrational currency markets. The Chinese Yuan should be rising against the US until its trade surplus vanishes. But too many governments want to keep the US$ up and Chinese government wants to keep the Yuan down. This has created a scenario where the US borrows ridiculous sums of money while its economy is hollowed out.

Bottom line is I believe in free trade but the only free trade agreement we need now is free trade in currencies where the Chinese government lets the Yuan float.

Edited September 7, 2011 by TimG

[dre]

I disagree with the premise that we are soon to be limited by fundamental resource shortfall. We have barely begun to tap the available resources.

We are tapping some pretty important ones a little heavy though. Things like soil and fresh water and fossil fuels.

[jacee]

Why? Because we should plunder people's assets as a way of paying off the debt?

Much of the transfer of public wealth and assets to the superrich from the rest of us may not even be visible to the naked eye It'4omewhat surprising we can see it at all

Let's face it, your problem is you seem to think the rich t ook your wealth rather than earning theirs. Most of the wealth in the Western world was earned. If you want to steal it, then just come out and say it rather than playing the victim. This post has been edited by CPCFTW

No, we want the superrichest top 1 percent, holders of 40 percent of the WEALTH to give it back.

Great discussion btw

Edited September 7, 2011 by jacee