For You Economists

[Woodruff]

If one of you economist types could take a look at this and explain it to me, I'd appreciate it. Oh, and if BBS does, please quote him or something.
http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

Thanks!

[bedub1]

If one of you economist types could take a look at this and explain it to me, I'd appreciate it. Oh, and if BBS does, please quote him or something.
http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

Thanks!

The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated withsaving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

[Phatscotty]

Too bad the article did not start in 1912, when there was NO SUCH THING as an income tax.

*When the income tax first started, it was with the promise it would never rise above 5%, and only the top 5% of tax payers would have to pay it.

anyone who wants the monster government to have more money, while apperently not giving a crap how they spend it, it's time to put up or shut up.

The IRS accepts checks. Help yourself.

All you can eat baby

[Woodruff]

Too bad the article did not start in 1912, when there was NO SUCH THING as an income tax.

*When the income tax first started, it was with the promise it would never rise above 5%, and only the top 5% of tax payers would have to pay it.

anyone who wants the monster government to have more money, while apperently not giving a crap how they spend it, it's time to put up or shut up.

The IRS accepts checks. Help yourself.

All you can eat baby

Didn't feel like contributing anything to the discussion?

[BigBallinStalin]

Woodruff is a smelly ____.

[patrickaa317]

Oh, and if BBS does, please quote him or something.[/url]

Woodruff is a smelly ____.

You should have put a disclaimer on your request woody.

[thegreekdog]

Woodruff is a smelly ____.

I can't believe Woodruff foed you. Cracks me up.

[BigBallinStalin]

Let's use basic economic reasoning.


What affects your income?

(A) Only taxes

(B) Taxes and other things.


If you said, "B," then you disagree with the .pdf, (which uses insufficient variables).


Econometrics is dangerous. Don't be as (un)intentionally misleading as that author of the pdf.

[Ray Rider]

Woodruff is a smelly ____.

I can't believe Woodruff foed you. Cracks me up.

shows how petty someone is when they foe people, imho

[thegreekdog]

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.

This is an absurd conclusion. It's like saying the butterfly that flapped its wings in New Guinea is associated with the hurricane in Florida.

The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.

That's better. Phew... I almost accused this guy of being partisan.

Research has shown that changes in capital gains and dividends were the largest contributor to the increase in income inequality since the mid-1990s.35 Capital gains and dividends have become a larger share of total income over the past decade and a half while earnings have become a smaller share.36 This suggests that labor’s share of income could also be related to the top tax rates.37 Figure 9 displays this relationship. The fitted values show that the labor share of income is higher
with higher top marginal tax rates and higher top capital gains tax rates. This relationship is statistically significant (see Table A-2).

This is something that I've often wondered about. It's very interesting, but again there are so many more factors than taxes.

What I don't understand is this:

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

On the one hand he says that top tax rates have little to no relation to the size of the economic pie. On the other hand he says that tax policy could have a relation to how the economic pie is sliced. How can he make these conclusions when the evidence he uses suggests that both are true?

[bedub1]

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.

This is an absurd conclusion. It's like saying the butterfly that flapped its wings in New Guinea is associated with the hurricane in Florida.

This makes perfect sense. The lower the tax rate on the 1%, the larger their percentage of the pie is. The higher the tax rate on the 1%, more money is taken from them, given to the 99%, which shrinks the portion of the pie the 1% has.

What I don't understand is this:

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

On the one hand he says that top tax rates have little to no relation to the size of the economic pie. On the other hand he says that tax policy could have a relation to how the economic pie is sliced. How can he make these conclusions when the evidence he uses suggests that both are true?

This also makes perfect sense. It doesn't matter whether the 1% have 1 million or 10 million, it has no effect on how large the entire economy is. The top tax rate does nothing but decide how much of the pie the 1% gets, not how large the pie is. Basically, trickle down economics doesn't work. There is no point in giving all the money to the 1% for them to spend and use to give the 99% jobs. What needs to happen is that since the 1% has taken all the pie, their taxes need to be jacked way up, to reduce their portion of the pie, so the rest of us can have something to eat.

[thegreekdog]

He's making two conclusions. The first conclusion disregards the data. The second conclusion regards the data.

The data shows two things:

(1) As capital gains rates decrease, the economy increases.
(2) As capital gains rates decrease, the rich get more of the overall pie.

He's saying that the capital gains rates decreasing does not positively affect an increase in the economy, despite the data he analyzed showing that there is a correlation between capital gains rates decreases and a growing economy.

Then, he says that the capital gains rates decreasing does show that the rich get more pie, relying on the data showing that there is a correlation between capital gains rates decreases and the rich getting more of the pie.

Why is he regarding the data for his second conclusion and disregarding the data for his first conclusion?

Let me provide an example.

I have a set of data that shows the following:

- As I type more, my finger strength grows. Typing more is associated with stronger fingers.
- As I type more, my eyesight becomes poorer. Typing more is associated with poorer eyesight.

So my conclusion should be, typing more will increase my finger strength and typing more will decrease my eye strength. But he doesn't make that conclusion. His conclusion is typing more does not make my fingers stronger (he disregards the first association). His second conclusion is typing more does make my eyesight poorer (he regards the second association). That seems ridiculous. He should either disregard both or regard both.

My position here is that tax data is not the only data one shoud look at when determining whether the rich have more pie or the economy increases. There are so many other factors that affect the economy and how much money the rich have that looking at only tax data is ridiculous. My position on taxes is not related to whether the economy does better precisely because there are too many other factors. I don't think trickle down economics work by itself because it relies completely on taxes and does not look at any other items that factor into economic performance. Oh, almost forgot. He does not provide any data showing that as capital gains increase, tax revenues increase (history shows tax revenue does not increase when capital gains rates increase). Frankly, I'm in favor of an increase in capital gains rates if it will increase tax revenue because I do not believe ordinary income should be taxed at a higher rate than capital gains. I'm simply pointing out that his conclusions are so wildly inconsistent that he should not be taken seriously.

[bedub1]

He's making two conclusions. The first conclusion disregards the data. The second conclusion regards the data.

The data shows two things:

(1) As capital gains rates decrease, the economy increases.
(2) As capital gains rates decrease, the rich get more of the overall pie.

#1 is incorrect. The data does not show that. That's why you are confused.

The fitted values suggest that the top marginal tax rate has a slight positive association with productivity growth while the top capital gains tax rate has a slight negative association with productivity growth. The regression analysis, however, does not find either relationship to be statistically significant (see Table A-1), suggesting the top tax rates are not necessarily associated with productivity growth.

[thegreekdog]

He's making two conclusions. The first conclusion disregards the data. The second conclusion regards the data.

The data shows two things:

(1) As capital gains rates decrease, the economy increases.
(2) As capital gains rates decrease, the rich get more of the overall pie.

#1 is incorrect. The data does not show that. That's why you are confused.

The fitted values suggest that the top marginal tax rate has a slight positive association with productivity growth while the top capital gains tax rate has a slight negative association with productivity growth. The regression analysis, however, does not find either relationship to be statistically significant (see Table A-1), suggesting the top tax rates are not necessarily associated with productivity growth.

(1) Read the last sentence of that paragraph.
(2) Look at Figure 1 (which shows capital gain rate decreases).
(3) Look at Figure 5 (which shows GDP growth)... oh wait, that doesn't exist. There is no table or figure or chart showing GDP growth compared to a reduction in capital gains rates. The author does, however, show a table with capital gains rates compared to income inequality. Why doesn't he have the former?

These results are generally consistent with previous research on tax cuts. Some studies find that a broad based tax rate reduction has a small to modest, positive effect on economic growth.25 Other studies have found that a broad based tax reduction, such as the Bush tax cuts, has no effect on economic growth.26 It would be reasonable to assume that a tax rate change limited to a small group of taxpayers at the top of the income distribution would have a negligible effect on
economic growth.

While I agree with is assumption, his data does not show this. Again, his conclusions are too conclusory (while in the body of the report he uses waffling language) and are contradictory to the data he provides and the data that exists (i.e. GDP increases every year). Again, this is why a report like this is worthless. He's relying on one set of data (tax rates) to show causation to two other sets of data (GDP growth and income disparity), when such causation doesn't occur.

[BigBallinStalin]

On the one hand he says that top tax rates have little to no relation to the size of the economic pie. On the other hand he says that tax policy could have a relation to how the economic pie is sliced. How can he make these conclusions when the evidence he uses suggests that both are true?

He's saying that top tax rates don't affect the Size of the pie, while tax policy affects the fraction of each group's share of the pie.

Perhaps?

[thegreekdog]

On the one hand he says that top tax rates have little to no relation to the size of the economic pie. On the other hand he says that tax policy could have a relation to how the economic pie is sliced. How can he make these conclusions when the evidence he uses suggests that both are true?

He's saying that top tax rates don't affect the Size of the pie, while tax policy affects the fraction of each group's share of the pie.

Perhaps?

I agree there is support data that shows that tax policy affects the fraction of each group's share of the pie. I cannot agree that top tax rates don't affect the size of the pie.

[thegreekdog]

Here...

http://mercatus.org/publication/tax-rat ... x-revenues

I can't figure out how to post these pictures directly, but this is my thing here. This right here. History shows that there is no great increase in federal tax revenues when tax rates are changed. Why? Because tax rates are one small piece of the overall economic picture (and the overall economic picture affects tax revenue).

[bedub1]

There is no table or figure or chart showing GDP growth compared to a reduction in capital gains rates.

Correct. And the reason there isn't this chart?

The regression analysis, however, does not find either relationship to be statistically significant (see Table A-1), suggesting the top tax rates are not necessarily associated with productivity growth.

Because the two aren't related. Thus there is no reason to graph them, as it's not a valid comparison. It's like the # of Pirates and global warming. Sure you can throw both numbers on a graph, and prove that as the number of pirates decreases, so does global warming increase, but it's meaningless because...wait for it....they aren't "statistically significant" and "the top tax rates are not necessarily associated with productivity growth."

[thegreekdog]

There is no table or figure or chart showing GDP growth compared to a reduction in capital gains rates.

Correct. And the reason there isn't this chart?

The regression analysis, however, does not find either relationship to be statistically significant (see Table A-1), suggesting the top tax rates are not necessarily associated with productivity growth.

Because the two aren't related. Thus there is no reason to graph them, as it's not a valid comparison. It's like the # of Pirates and global warming. Sure you can throw both numbers on a graph, and prove that as the number of pirates decreases, so does global warming increase, but it's meaningless because...wait for it....they aren't "statistically significant" and "the top tax rates are not necessarily associated with productivity growth."

I agree they aren't related. If they aren't related, how are capital gains tax rates and the gap between rich and poor related? Unlike you (and the author), I believe capital gains tax rates have little to do with the widening gap between rich and poor.

EDIT - By the by, a CBO report projected that tax increases scheduled under the current law (i.e. the sunset of the Bush tax cuts) will result in the U.S. economy contracting by 0.5% and unemployment increasing to 9.1% by the end of 2013. Not that I trust the CBO... just saying.

[bedub1]

I believe capital gains tax rates have little to do with the widening gap between rich and poor.

Really? You don't think if every year the government took 50% instead of 15% of the profit from capital gains that the gap between rich and poor would shrink? That seems pretty common sense to me.

[thegreekdog]

I believe capital gains tax rates have little to do with the widening gap between rich and poor.

Really? You don't think if every year the government took 50% instead of 15% of the profit from capital gains that the gap between rich and poor would shrink? That seems pretty common sense to me.

Look at the revenue numbers compared to the capital gains rates in the link I provided. When capital gains rates increase there is no discernable increase in tax revenue. What does that mean? It means people don't recognize capital gains anymore. The argument is that it changes behavior.

[BigBallinStalin]

Here...

http://mercatus.org/publication/tax-rat ... x-revenues

I can't figure out how to post these pictures directly, but this is my thing here. This right here. History shows that there is no great increase in federal tax revenues when tax rates are changed. Why? Because tax rates are one small piece of the overall economic picture (and the overall economic picture affects tax revenue).

Haha, I was looking through the graphs, and it's funny. No matter what rate the government raises taxes, they don't seem to get more revenue (however, the tax revenues were relative to GDP....