Wednesday, November 12, 2008

Comment: Taxes and the Great Depression

During the election campaign, there was much discussion about taxes and the current economic problems. According to John McCain, the worse thing to do is to raise taxes during economic downturns.

However, history does not really bear out his arguments. Let's take the most pertinent example for today's financial meltdown -- the Great Depression.

In the run up to the Great Depression, we saw a policy of continually lowering tax rates from the end of World War I. At the end of the war, spending was about three times greater than revenues leading to large budget deficits.

The decade of 1920s saw taxes for the rich drop and some 80 percent of former taxpayers exempted from taxes completely.

By 1925, the top tier tax rate had dropped to 25 percent (sound familiar?) the lowest in eight decades. By 1929, the richest 1 percent of people own 40 percent of the nation's wealth, again a familiar statistic.

Following the stock market crash and the bottoming out in 1932, the US followed a policy of raising taxes especially on the wealthiest Americans.

By 1936, the top tax rate had risen to 79 percent, however it was the hostilities in Europe that really raised taxes as nations around the world sought to build up their armed forces in anticipation of hostilities. From 1939 to 1941, US manufacturing jumped by 51 percent, although unemployment numbers were still very high.

When America entered the war, unemployment plunged due to the draft and the full steam operation of the war machine. By 1945, the tax rate on the richest Americans was 91 percent! It remained around at least 88 percent until 1963 when it was lowered to 70 percent, and now stands at 35 percent.

So, we see that America declined into the Great Depression during a time of very low taxes when most workers, who formerly were required to pay taxes, were given full exemption and top tax rates were only 25 percent. On the other hand, it rose out of the Depression when taxes were very high with the wealthiest Americans paying a whooping 91 percent.

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Russia nixes US missile proposals

Moscow rejected US overtures on ballistic missiles and the NATO missile defense system and said it would wait for the new administration of Barack Obama to discuss the issue.

Russia has threatened to move short-range Iskander ballistic missiles near the border with Poland and the Czech Republic in response to deployment of the NATO missile defense system in those countries.

Russia rejects US missile proposals
Reuters - 1 hour ago
By Guy Faulconbridge MOSCOW (Reuters) - The Kremlin on Wednesday rejected US proposals aimed at easing concerns over a missile defense system in Europe and said it would try again to resolve the row once Barack Obama is in the White House.
Report: Kremlin rejects US missile defense offer The Associated Press

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