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This misses a crucial point: higher taxes by definition transfer resources from private investments to public investments. But we know that too much public in

This misses a crucial point: higher taxes by definition transfer resources from private investments to public investments. But we know that too much public investment is inefficient ( Brazil, Soviet Union, Venezuela, etc ). So we need to make just the right amount of public investment and no more, and leave the rest to be invested by private sector. Tax rates should be set accordingly

MaysonL 10y ago
So why did the economy grow so much better when the taxes were higher?
- talmand 10y ago
  Was it possible the tax laws made the rate higher but allowed more ways to avoid paying the highest rates?
  - gadders 10y ago
    The higher the tax rate, the more worthwhile it is to expend effort to avoid them.
    - ArkyBeagle 10y ago
      It may also be that firms simply limit production. Since taxation is per firm, there are more firms. IOW, it may act as a brake on consolidation.
- ArkyBeagle 10y ago
  1) Seeking "tax shelters" through investment. Very inefficient, however. 2) Factors other than the tax system. Correlation != causation, IOW. The U.S. had (something approximating) the only standing industrial infrastructure in the world post-WWII. It's also worth noting that the Kennedy tax cuts probably released a lot of pent-up economic energy. Similar tax cuts under different circumstances may not have the same effect - there had been widespread privaiton in the US from 1929 until the '50s, and this sort of acted as a "second stage" booster. 3) A general cultural civic-mindedness. I recently listened to a presentation of Devon Energy's CEO, and his father started a fund in energy and wanted it structred as a registered security , one of the first , and was told "you don't need to do that" by the SEC, but he persisted because he felt that was better. He then contrasted that now with people spending lots of money to avoid SEC regulation. That highlights the level of culture shift since then.
- vasilipupkin 10y ago
  Taxes or tax rates? Don't forget that government spending in the 1950s was quite low as well
- bko 10y ago
  Despite higher top marginal tax rates, federal tax revenue as a percentage of GDP has been pretty stable post WW2 https://research.stlouisfed.org/fred2/series/FYFRGDA188S https://research.stlouisfed.org/fred2/series/FYFRGDA188S
Joeri 10y ago
The problem is that private investments maximize ROI instead of utility. This is why the financial sector keeps growing without actually contributing more to society. It's the easiest place to make more profit. That's why many kinds of investments, the ones with low financial ROI, must be made by the government.

MaysonL 10y ago

So why did the economy grow so much better when the taxes were higher?

talmand 10y ago
Was it possible the tax laws made the rate higher but allowed more ways to avoid paying the highest rates?
- gadders 10y ago
  The higher the tax rate, the more worthwhile it is to expend effort to avoid them.
  - ArkyBeagle 10y ago
    It may also be that firms simply limit production. Since taxation is per firm, there are more firms. IOW, it may act as a brake on consolidation.
ArkyBeagle 10y ago
1) Seeking "tax shelters" through investment. Very inefficient, however. 2) Factors other than the tax system. Correlation != causation, IOW. The U.S. had (something approximating) the only standing industrial infrastructure in the world post-WWII. It's also worth noting that the Kennedy tax cuts probably released a lot of pent-up economic energy. Similar tax cuts under different circumstances may not have the same effect - there had been widespread privaiton in the US from 1929 until the '50s, and this sort of acted as a "second stage" booster. 3) A general cultural civic-mindedness. I recently listened to a presentation of Devon Energy's CEO, and his father started a fund in energy and wanted it structred as a registered security , one of the first , and was told "you don't need to do that" by the SEC, but he persisted because he felt that was better. He then contrasted that now with people spending lots of money to avoid SEC regulation. That highlights the level of culture shift since then.
vasilipupkin 10y ago
Taxes or tax rates? Don't forget that government spending in the 1950s was quite low as well
bko 10y ago
Despite higher top marginal tax rates, federal tax revenue as a percentage of GDP has been pretty stable post WW2 https://research.stlouisfed.org/fred2/series/FYFRGDA188S https://research.stlouisfed.org/fred2/series/FYFRGDA188S

Joeri 10y ago

The problem is that private investments maximize ROI instead of utility. This is why the financial sector keeps growing without actually contributing more to society. It's the easiest place to make more profit. That's why many kinds of investments, the ones with low financial ROI, must be made by the government.