Why The Rich Like High Taxes

[Music] so we always hear that the rich should pay taxes more that our tax rates aren't high enough if only we raise taxes we could solve a lot of our problems inequality would go down and maybe we've even have more economic growth now the funny thing about this view is that it really doesn't comport with our historical experience at all whenever we have raised taxes on the rich we have seen horrible offenses against inequality and economic growth the most illustrative of these errors was the 1950s when the top tax rate top income tax rate in the United States and all the way up to 91% now I want to point out that that is no misprint the top tax rate in the United States was 100 percent minus 9 percent ninety-one percent if you made $200,000 or more your last income was subject to 91% confiscation by the United States government there were also 26 brackets in the income tax code and they ran from 20% all the way up to 90 percent if you made any kind of money at all you were paying 30 40 50 percent we started making more money 60 70 80 90 % that was a high tax era now you may be thinking but wait a minute the 1950s they were the greatest economic era ever that's when everybody had a job those jobs were for life people got to live in suburbia and go on vacation and do all sorts of amazing things it was post-war prosperity right actually all of these things are myths in the 1950s the United States suffered four recessions there was one in 1949 1953 1957 1964 recessions in 11 years the rate of structural unemployment kept going up all the way up to 8 percent in the severe recession of 1957 58 so there wasn't significant economic growth in the 1950s it only averaged 2.5% during the presidency of Dwight D Eisenhower and the tax code spawned inequality that is even unheard of today how so well when you have a marginal rate of the income tax that is ninety-one percent to have an exception from that income tax is very valuable if you were able to get a statute written into the tax code that says you don't have to pay that ninety-one percent and your high income you can either pay nothing or pay a much lower rate that exemption is very valuable the tax code in the 1950s was eleven thousand pages the first two pages of the tax code said very simple things the opening line of the tax code said that income is taxable from any and all sources derived okay if you make income it's taxable and then the second two pages of the tax code with a list of the rates the rates that started at 20% on low income and went all the way up to ninety percent ninety one percent on high income the next 11 thousand pages after those first two pages were exceptions to those statements they were pet statues that were written into law by Congress at the behest of lobbyists that said this income is not subject to taxation in all ways in almost every case it had to do with the income of the rich let's give some examples one of the most notorious cases perfectly legal by the way was that of the studio studio mogul Louis being mayor in 1951 Louis be mayor retired from his studio in Hollywood and he got a lump sum payment from the studio of 2.7 million dollars which is probably about 20 million dollars today and that income was not subject to the ninety-one percent tax rate it was only subject to a twenty five percent tax rate how did that happen Louis be mayor hired a lobbyist who got a congressman to write a pet statute into the law that exempted his income from taxation and it applied only to mayor and his associate who got those lump sum payments that's what the eleven thousand pages in the tax code were they were a nest of cronyism in the only way that those exemptions would ever be thought to be put in a tax code is if the marginal tax rate were high the marginal tax rate was high there for all sorts of people one of exemptions from it there was a famous comment among the legal bar in the 1950s it was ordered by john f kennedy's SEC chairman William Carey and that comment was once you become a millionaire you don't try to litigate a tax case you don't try to contest the IRS if you say they think you owe more money than you do you simply get the statute changed that's how easy it was in the 1950s to get Congress to write a pet exemption for you in the tax code so you can see what kind of pernicious effects this had on the inequality situation in the United States in the 1950s the rich had all the money and they hid it from the taxman meanwhile in doing so they weren't deploying their capital in ways that were productive for jobs and economic growth they were hiding it in all these little ways that Congress permitted them to hide it I mean a Treasury estimate in the middle of this in 1957 said that only 43 percent of income in the United States is really subject to taxation the other 50% fifty seven percent is hidden in mortgage interests and all the other eleven thousand pages of exemptions unions ended up calling the tax code the swindle sheet because that's where the rich were able to hide their income and they weren't making it available for productive growth so when we talk about the hot air of high taxes that it was associated with economic growth and jobs for everyone that actually is not accurate at all it was an era in which the rich deployed their income in ways that the government told them to so that they could keep it in the net result was a inequality and be slow economic growth there's a reason we dumped all that for tax rate cuts in the 1960s [Music] you

Channel: Learn Liberty

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Keywords: Brian Domitrovic, income equality, tax brackets, federal tax brackets, economic inequality, economic growth, cronyism, libertarian, liberty, Institute for Humane Studies, Learn Liberty

Id: tK_d9s2pqrk

Length: 6min 3sec (363 seconds)

Published: Wed Aug 16 2017