Our Economic Woes – Is There a Solution We Can Take From Relatively Recent History?
Posted @ 9:09 pm - Filed under Economy, Physics of Economics, Texas
Let’s begin with a sentiment I’ve adopted since the night I first heard it uttered by Johnny Carson. “If all the world’s economists were laid end to end, it’d be a good idea.” Economics violates the 80/20 rule in the sense only about 2% of them ever seem to get things right more than they get it wrong. I’ve studied this phenomena with the assumption the principles involved work every time they’re tried.
Problem is, much of what one economist hails as ‘proven principle’ is mocked by the next guy. So much for the science of economics.
Though they all agree on something as simple as the law of supply & demand, they’ll debate ’till their heart stops beating about whether government spending or tax cuts work better. What really galls is those on either side of the debate will often cite the same set of ‘facts’ to prove their case.
About 25 years ago, give or take, I noticed a major difference between the two basic camps — government spending vs cutting taxes. The former approach has as a foundational assumption that human behavior remains static when faced with different government policies affecting them directly. Whereas the latter assumes people will alter their behavior according to the consequences of any policy changes affecting them — especially if it’s financial in nature.
Speakin’ only for myself, if I lived in California back in the ’50’s and owned my own firm as I do now, and made what was defined back then as high wages, I would’ve quit workin’ every year when I hit a certain amount. Why? Let’s look at the numbers high wage earners faced back then.
Once my income would have reached the trigger point, the highest marginal personal income tax rate of 90.5% (!) would’ve kicked in — and that was just for federal taxes. Then California’s taxes would pile on. Let’s say they were 9%. That meant every morning as I was readying myself for work, I knew going in that not counting payroll taxes etc., every dollar I made was really only half a cent.
Would that change your behavior?
Apparently it altered the practices of thousands of Americans who had the option of working hard to earn more money, or go fishin’. How do we know this? History. JFK, in response to an economic downturn, cut the top marginal rate from the sublimely ridiculous 90.5% to a merely everyday ridiculous 70%. He also cut taxes on business. His reasoning?
To stimulate immediate economic growth, an increase in jobs, and to increase the amount, in terms of dollars, collected by the U.S. Treasury via personal/business income taxes. HE expected Americans to change their behavior both personally and in business as a direct result of the changes he was making. Imagine that.
The results JFK expected, and predicted in his address to the country on the subject happened immediately upon being passed by Congress.
It’s funny how regular folk will bust their butts to improve their lot in life, as long as they perceive the reward for said butt busting to be fair and just. President Kennedy had it right, and he knew it. He stated his reasons clearly, and without stuttering once. I’ve heard his speech on the subject multiple times. Furthermore, the consequences of his tax cuts proved him right on the money — pun intended.
Fast forward to the early ’80’s, if only to show bipartisanship.
The same scenario, the same results. The only difference between the actions/results of the two presidents’ tax cuts was in degree. Where President Kennedy cut from 90% to 70%, President Reagan went all in, so to speak, cutting Kennedy’s top marginal personal tax rate of 70% to 28%.
On the other hand, those who favor government spending to grow the economy, think by simply raising taxes they’ll increase the likelihood of increased revenues to the Treasury. The apparently false assumption being that you and I, along with business won’t change our behavior one way or the other. See, you and I can’t print money. We must earn it, which means we must work hard for it.
Businesses aren’t any different than you and I. If they’re taxed into oblivion, they’ll change their conduct until they either figure it out, or go out of business OR simply go where they’re appreciated.
Take California — please. (badda boom)
Our current Governator is only in office due to the hemorrhaging of business taxes brought on my huge employers simply giving up and leaving the state. Where did they go? An easy question if there ever was one. They went to business friendly states — Arizona, Idaho, and especially Texas among others. California still hasn’t fully recovered from that exodus in my opinion.
All the talk about interest rates, and stimulus this, stimulus that, avoids the medicine that will bring our country back to its accustomed economic status quo. Lower taxes across the board — personal — business — capital gains. Then get the heck out of the way of the tsunami of growth and repair that will be our new reality.
Your thoughts? Before anyone brings it up, yes, I understand how government regulators have dropped the ball big time. That’s not the subject of this post though, so I’d appreciate it if the comments would stay on topic.
You can contact me at 619 889-7100. Have a good one.
This entry was posted on Thursday, October 8th, 2009 at 9:09 pm and is filed under Economy, Physics of Economics, Texas. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Having lived in San Diego myself I’d say I too would stay there and be taxed just the same; but there is a point at which one must truly decide to call it quits.