The economy took off after the postwar Congress cut taxes
http://online.wsj.com/article/SB1000...046893848.html
'He got us out of the Great Depression." That's probably the most frequent comment made about President Franklin Roosevelt, who died 65 years ago today. Every Democratic president from Truman to Obama has believed it, and each has used FDR's New Deal as a model for expanding the government.
It's a myth. FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II.
Let's start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good.
What about World War II? We need to understand that the near-full employment during the conflict was temporary. Ten million to 12 million soldiers overseas and another 10 million to 15 million people making tanks, bullets and war materiel do not a lasting recovery make. The country essentially traded temporary jobs for a skyrocketing national debt. Many of those jobs had little or no value after the war.
No one knew this more than FDR himself. His key advisers were frantic at the possibility of the Great Depression's return when the war ended and the soldiers came home. The president believed a New Deal revival was the answer—and on Oct. 28, 1944, about six months before his death, he spelled out his vision for a postwar America. It included government-subsidized housing, federal involvement in health care, more TVA projects, and the "right to a useful and remunerative job" provided by the federal government if necessary.
Roosevelt died before the war ended and before he could implement his New Deal revival. His successor, Harry Truman, in a 16,000 word message on Sept. 6, 1945, urged Congress to enact FDR's ideas as the best way to achieve full employment after the war.
Congress—both chambers with Democratic majorities—responded by just saying "no." No to the whole New Deal revival: no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits.
Instead, Congress reduced taxes. Income tax rates were cut across the board. FDR's top marginal rate, 94% on all income over $200,000, was cut to 86.45%. The lowest rate was cut to 19% from 23%, and with a change in the amount of income exempt from taxation an estimated 12 million Americans were eliminated from the tax rolls entirely.
Corporate tax rates were trimmed and FDR's "excess profits" tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945.
Georgia Sen. Walter George, chairman of the Senate Finance Committee, defended the Revenue Act of 1945 with arguments that today we would call "supply-side economics." If the tax bill "has the effect which it is hoped it will have," George said, "it will so stimulate the expansion of business as to bring in a greater total revenue."
He was prophetic. By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. The U.S. began running budget surpluses.
Congress subs uted the tonic of freedom for FDR's New Deal revival and the American economy recovered well. Unemployment, which had been in double digits throughout the 1930s, was only 3.9% in 1946 and, except for a couple of short recessions, remained in that range for the next decade.
The Great Depression was over, no thanks to FDR. Yet the myth of his New Deal lives on. With the current effort by President Obama to emulate some of FDR's programs to get us out of the recent deep recession, this myth should be laid to rest.
I'd say the fact that WW2 left the United States as the only industrialized nation on earth also played a part. Pre WW2 it was the U.S., Japan and Europe. Then we spent half a decade blowing up all the industry in Japan and Europe. Don't get me wrong, I like low taxes as much as the next guy but let's not forget the HUGE inherent advantage the United States had at that particular moment in history. To chalk up the U.S.' recovery as a result of tax policy is misleading.
Last edited by coyotes_geek; 04-12-2010 at 01:58 PM.
That makes sense. But I do think lowering the top marginal rate from 90% to 38% did some good too. I had no idea it was that high.
Funny column.
The course is clear: start bombing Germany and Japan again. Everyone loved us for it the first time around.
Doesn't this say that the Congress lowered the highest income tax rate from 96% or so to 84 1/2 % or so? (I forgot to note the exact numbers). But I know that is the general area.
Corporate taxes were lowered to 38% or so, but individual income taxes were still astronomical by today's standards, even after the bi-partisan tax cut.
If today's tax rates were that high, we wouldn't have to worry about the deficits.
No, the opposite happens.
When people are squeezed too much, they find ways of hiding their income and assets. Then it's not spent in the economy, making things even worse.
So why did the economy grow when the richest were being squeezed to the tune of 85% of their income?
People on the whole will always find ways of hiding their income, and rich people will always be able to afford to find the most devious ways of protecting their bank.
That's why we need a consumption based revenue system, not based on income and productivity.
We are punishing the productive people. We are making it undesirable to try to make extra money. When I was in the 31% marginal rate, my at ude was "why should I work more." I was paying 31% + 9% state + 7.65 SS/medicare of my extra wages. Wage increases didn't keep up with cost of living at those rates.
Just to add to your point, agencies like the WPA helped develop the infrastructure necessary to grease our way towards economic dominance even if they failed to create lasting jobs. Those who stopped working for the WPA did so because they began to have sustainable jobs to return to.
Having nothing but a sales tax isn't something I'm entirely opposed to, but even that comes with a price: a e in crime to supply the piracy which people will support in order to get goods for cheaper.
There is a drawback to anything. Nothing is perfect. Look at how positive it would be to eliminate politicians control over the people by tax incentives. How about the major shrinkage of the IRS.
the tax could be very simple. Different rate for different goods if desires, and no tax on necessities. The poor would pay no tax this way, unless they had money to splurge on taxable items. The rich would have no need for tax shelters, and likely spend far more of their money. The price of goods would remain the same for most, and cheaper for basic necessities. there would be no need for earned income credits as the prices of items the poor need would fall.
The WPA was a far superior stimulus concept compared to what the current stimulus bill did. Not that I'm an expert in the field of economics, but from my limited understanding the WPA is the example of what the Keynesian approach is supposed to accomplish. The government spends money to create demand. What we've done though is basically just hand out money and hope that the demand creates itself. Just my layman's observations........
Right, but what I'm saying is there would also be a vast, unregulated black market that encouraged criminality at every level of the culture. Prohibition caused an epidemic of violent crime revolving around a product that only, say, %70 of people wanted. Imagine what would happen if you extended that percentile to %100... electronics, cars, etc. It would be more than a little drawback, no?
We are absolutely on the same page on this.
No the opposite happens.
Sincerely,
All who suck talk radio/ fox news
It would never happen to that degree. You really think the underground market can supply enough goods at a better price to matter?
The economy was coming back on its own until FDR plunged it into a "second" depression in 1937.
Trust me... I know it can. Ever been to Mexico?
Take half the money saved by shuttering the IRS and buy more cops. I am 100% in favor of a consumption tax.Trust me... I know it can. Ever been to Mexico?
Edit: 98.5% actually. My only concern is how the Federal Government would continue to operate when the economy goes into recession and there is no consumption to tax?
No, I think Hitler, Musolini, and Hirohito did that...
You kinda hint at the seeds of the problem, maybe -- if and when the black market removes a significant-enough amount of revenue from the govt, the government begins to get diminishing returns while crime strengthens in an inverse proportion. As for cops being able to quash the organized crime that would spring up, I again point to present day Mexico and their drug conflict, or even present-day copyright issues here in the US revolving around downloadable goods... there is simply too much demand for these goods for law enforcement to possibly keep up after awhile.
WW2 industrialization
That coupled with the billions spent rebuilding markets in Europe and later Asia and also the Bretton Woods Agreement and GATT's lowering tariffs pretty much worldwide.
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