Are You Smarter Than a Nobel Prize Economist?

Promising to stick it to “them” while simultaneously giving stuff to “me” is a winning formula in American Presidential politics. We have become a nation seeking bread and circuses willing to submit to the panderer who offers us the most. It is only going to get worse as we slide inexorably down the slippery slope to November’s first Tuesday. But, take fifteen minutes to read this interview with someone who knows some things about markets and money.

Devastation of Taxation

Pay particular attention to those paragraphs about a third of the way in which trace the roller coaster of our progressive income tax rates since that dark day when the Sixteenth Amendment was adopted.

Initially the income tax was established at 3%. No wonder it was acceptable then. Talk about your camel’s nose slipping surreptitiously under the tent wall! The pressures of WW I drove it to 60%--less than a decade after adoption the most successful Americans were having almost two-thirds of their next earned dollar snatched away by the government. With the end of the Great War, the burden got rolled back to 25% but then Herbert Hoover suggested back to 60% in 1932—remember that the stock market crashed in ’29! Also remember that Hoover was unceremoniously booted out of office in 1932 as well. I guess voters were smarter about these things then.

National emergency in WW II drove income tax as high as 92.5%, so maybe one would have to look askance at accusations of war profiteers in private industry. Looks as though the profiteer from the war was the government. Three incremental cuts in the post-war years brought it to a nadir under Reagan. Recall that the two tax cuts of first Kennedy and then Reagan were each touted as the largest in history—and the economy boomed each time, despite Reagan’s vilification as applying “voodoo economics.”

Clinton snuck tax back up to 40% and George Bush eased back to a current top rate of 35%; with the Bush tax cut package slicing not only marginal income tax rates, but also capital gains and corporate taxes as well. Mr. Obama is running on a platform of letting the Bush cuts expire and then further skewing the rate structure to reward those who pay the least and stick it to those who carry the heaviest burden. Take from “them” and give to “me” because there are more of me and few of them to vote.

Is the American electorate smarter than a Nobel prize winning economist? I doubt it. But, will the masses understand the concepts? I doubt that as well. Mr. Mundell argues strongly for further tax cuts, not repeal of the existing effective reductions and he predicts economic disaster reaching not only throughout America but shaking world economies as well. I think he may have something here.