Your analysis is where the old economic joke "But does it work in theory?!" comes from. The largest economic expansion in American history came when marginal rates topped out at 91%, and capital gains rates were higher, too. High taxes on the wealthy stifling investment is a myth that isn't supported by history. Twice in our history has the wealth been this concentrated, and each time it has led to severe economic problems.
That's a great line, "But does it work in theory?" I see it almost as often as that other chestnut: "correlation is not causation." But the marginal tax rate changed from 25% (in 1925) to 63% (1932) to 79% (1936) during the teeth of the Great Depression, showing that high marginal tax rates can coexist with recession as well. I put very little store in these figures, even when they support my side (e.g. the second-largest recession, after WWII, while the rate was 94%). So many other factors come into play. Besides, the marginal tax rate is not the effective tax rate, since there are so many exemptions and workarounds, legal and otherwise. And expansions and recessions are measured by GDP, surely the worst indicator of economic well-being, except for all the others. I find it plausible that if "astronomically higher marginal tax rates" have any effect, it will be to discourage the creation of additional wealth. My belief is that the primary engine behind increasing prosperity is the creation of new wealth. Forget the analysis. Is it debatable that even the poor in the United States are better off today than the poor were in previous decades? Not to mention that many of them are better off than most of the wealthy were in centuries past. Much is made of the distribution of wealth, e.g., in this video. Much attention is given to that lucky Top 1%. I think we should focus on the bottom 1%. That's where the problems are. And I maintain that when the top earners, 90% of whom started from scratch, generate $700 billion dollars a year, this tends on average to benefit everyone, even if the fat cats do not make malaria eradication a hobby.The largest economic expansion in American history came when marginal rates topped out at 91%
I trust that you are not arguing that 91% marginal tax rates caused the largest economic expansion in American history. At most, you can say that high marginal tax rates do not prevent expansion.
I wasn't using high rates to say that they cause economic growth. Rather, that they're uncorrelated at best. The bottom 1% is a shitty place to be, but it's not where most of our problems lay. Lack of wealth in the middle class is what is making this recovery so poor. Creation of new wealth does very little when it all goes to a very few. Robert Reich has a new book on the topic that is interesting, and there's also this classic from the 80's that predicted this disaster: Mink Coats Don't Trickle Down
Thanks for the reading suggestions. I am of the opinion that a lot of people considered experts don't know what they are talking about. As I am not even an expert, I have to keep an open mind and look forward to opportunities to learn more and find out where I am wrong. The preview pages I was able to read on Amazon gave me the feeling that Mink Coats Don't Trickle Down is not much more rigorous than the title suggests. And the title is simple to refute. Mink coats don't have to trickle down. They can stay up there, flying in the sky, as depicted on the cover. The trapper (or farmer) and the tanner and the furrier have already been paid. As has the button maker, zipper maker and fabric maker (and farther back, a cotton or wool or nylon or viscose producer). A seamstress has long since forgotten about that coat and is now putting food on the table sewing a new coat. Checks to various distributors, warehouse operators and truckers have cleared. A photographer and copy writer and model and other ad agency personnel are happily on contract. A store clerk and manager and interior designer and janitor and landlord have all gotten their slices of the pie. The stylish one-percenter strolling out of the boutique has already made life better for dozens of regular people before any activist has a chance to splatter her with pig's blood. What happens after is immaterial ... though I expect the coat will be welcomed by dry cleaners, closet organizers, and eventually a fancy second-hand fashion store. Everyone wins but the minks. "Trickle down" is a dumb metaphor. It's a flood.