Classic New York Times: In Paul Krugman’s latest column he uses the Twinkie ordeal as an excuse to write about the tax rates of the 1950’s, and how they relate to today’s rates. He argues–as you might expect from Krugman–that the 90% top tax rate of the 1950’s led to a strong, booming economy. When I first read the article, I knew something was fishy, and I was correct. After doing some brief research, I can now shoot holes in Krugman’s arguments.
Here’s what Krugman had to say:
“Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years…Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in Atlas Shrugged, published in 1957, was basically Dwight Eisenhower’s America.
Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973.
There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, ‘Are you now or have you ever been?’ The rest of us, however, are very glad those days are gone. We are, morally, a much better nation than we were.”
Not only is Krugman implying some weird, tenuous connection between cutting taxes and hating minorities and women, but he is also saying that the tax rates of the 1950’s led to an unprecedented economic growth.
First off, let’s talk about his implication. He’s insane. Does anymore need to be said? Nope. Now on to the substance, if you can call it that.
Krugman makes the claim that a 90% tax rate contributed to an economic boom in the 1950’s. Here’s why he’s incorrect:
1. He is forgetting that the 1950’s came just after WWII. Post WWII, the rest of the manufacturing world was crippled and the US dominated in that regard.
2. According to James Pethokoukis, of AEI.org, the growth rate of the 1950’s wasn’t quite as great as Krugman makes it out to be. The rate of economic growth from the year 1951-1960 stood at just 3.0%, which is below average when compared with the long-term trend from 1947-2007. In addition, the United States suffered 3 recessions during that decade.
3. Raising taxes on the “very wealthy,”–or top 0.5%–to the levels seen in the 1950’s would not bring in enough revenue to make a dent in our debt.
4. When JFK came into office, he lowered taxes, and there was an economic boom. If things were so wonderful in the previous decade, a boom would not have been needed, nor would it have occurred.
5. Finally, according to The Wall Street Journal, the most revenue raised as a percentage of GDP was when taxes were at a record low. From 1997-2002, the low/high tax percentages stood at 15/39.6, yet raised the most revenue at 9.4 percent of GDP.
Paul Krugman is on the fringe, so why bother discussing him? Because many people listen to him. He writes for the NY times, and has many believing his nonsense. By breaking down and summarily discarding his “arguments,” we can do our part to discredit this lunatic. It may seem like a wasted effort, but every fight counts.