Permanent / Temporary Taxes During A Crisis: A Little History

Steve Novick

To hear some people tell it, establishing permanent tax increases on corporations and the wealthy is an unprecedented and disastrous move, sure to plunge us into a never-ending economic nuclear winter. 

Have any of these people ever heard of a little ol’ country called the U.S of A.?  Do they remember the Greatest Generation? Whipping Nazi butt? Building the greatest economy the world had ever seen, with huge, sustained and fairly distributed economic growth from 1947 to 1973?  Do people remember when General Motors was General Motors?

The individual and corporate tax system America had during those years was developed during the Depression and WWII.  FDR established a graduated personal income tax system with really high marginal rates for the wealthy and lower ones for everyone else.  Then he did the same thing with corporate taxes. Other than JFK dropping the top marginal rate from 91% to 70% in 1962 or thereabouts, the basic system stayed pretty much the same until Reagan.  Meanwhile, the nation flourished. We repaid the debt we had built up in the Depression and the war. People trusted the government. They thought the system was fair.

It’s generally in crises that politicians develop the guts to do tough things.  FDR and Congress did the right thing in the ‘30s and ‘40’s.  We’re lucky they didn’t tear it all up when the war and the depression were over.  The Oregon Legislature is following their Greatest Generation example.  The hat of every red-blooded American should be off to ‘em.

Comments

  • (Show?)

    The position that we should make any tax increases temporary posits that the taxes are set right in the first place. I believe that due to the kicker we tax too little to provide the government services, primarily education, public safety, social services, and infrastructure that people want and need in a civilized modern society. The OBA can discuss lowering some business taxes once we have eliminated both kickers. Until then we need more revenue to replace the kicker loss and businesses have not paid enough to even cover the cost of services required by business.

  • Kurt Chapman (unverified)
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    That temporary tax on telephones enacted to fund the Spanish American War (a tax on the wealthy since they were predominately the ones that had telephones back then) was finally repealed when?

    The state apparently has enough money to fund the $250-$300MM in pay raises (about 30% across the board) given by Gov K to the managerial class of Oregon employees last fall. When that gets cut to "0" then I may begin to believe that we need additional revenue.

  • KenRay (unverified)
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    Debating the tax level is missing the point. The majority of people are happy to pay taxes as long as they feel they are getting value for their tax dollar! But they aren't. We see light rail voted down three times in Clackamas county, but it's being built anyway. Vox Populi, Vox Dei? Not in Clackamas County. And public transit, especially light rail heavily subsidized which diverts money that could build roads. They see costs of school buildings and public roads heavily inflated by artificially high Davis-Bacon wages and public employee benefits that could never be sustained in a competitive, market-based environment. They see Government doing nothing to reform itself, only asking for more tax money. They see bureaucracy after bureaucracy, one hand not knowing what the other is doing, impeding business and impeding personal liberty. So show me. Make public agencies compete against private business for work and pay real market wages, not the fictionally named "prevailing wage." Give parents the option to have competition in education by charter schools and vouchers, instead of the government run monopoly. Reduce the workforce in government for a change. Do an actual cost-benefit analysis for transportation, instead of basing transportation spending on political ideology.

    Once that has happened, come and ask me for more money. Not until.

  • marv (unverified)
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    If the corporate minimum has been ten dollars since 1933 then that is as close to permanent as one can get. The desire to justify a point of view is seen in The Family which also originates in the thirties. In the Northwest as I recall.

    Devine inspiration and the chosen whose right to govern came directly from the creator is part of what we are dealing with here. Democracy is the foe of these folks. That is why there was a Declaration of Independence. It is true that my angst is having benefited by a good public school education, including land grant colleges.

    Reagonomics, despite having followed the vote which placed Ballot thirteen before the people of California, had as its intended outcome the dilema which Grover Norquist sees as a good thing.

    I believe in a progressive tax structure which is intended to give incentive to holders of wealth to invest. The role of a financialized economy, deregulated, is to undermine the value of currency and to accumulate in the hands of a few all the wealth. And power. It is called fascism.

  • Buckman Res (unverified)
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    Me thinks old Steve must have cracked open a couple bottles of beer with his built in can opener before writing this piece. Hard to remember reading any BO opinion piece with more bad/slanted/distorted/simplistic information in it than this one. Let’s take ‘em one by one.

    Do they remember the Greatest Generation? Whipping Nazi butt?

    Let’s not forget most of the heavy lifting and sacrifice was done by the British by the time we got involved in things. Not to mention our former ally Joe Stalin and his people.

    Building the greatest economy the world had ever seen, with huge, sustained and fairly distributed economic growth from 1947 to 1973?

    Fairly distributed economic growth? Why then did we need to begin LBJ’s failed “War on Poverty” that did nothing to solve the problem of poor people in America? Could it be that the real solution, providing equal opportunities to all Americans instead of wealth redistribution, was never addressed by those in power?

    And the period Steve notes was the time the rest of the industrial world was busy getting up off their knees after the bashing they took during WWII, leaving the playing field to a relatively unscathed US.

    Other than JFK dropping the top marginal rate from 91% to 70% in 1962 or thereabouts, the basic system stayed pretty much the same until Reagan.

    It boggles the mind that any honest American would think that a tax rate of 91%, or even 70%, was “fair”. What Regan did to reduce that confiscatory tax rate was fair, equitable, long overdue, and done in the name of social justice.

    People trusted the government. They thought the system was fair.

    Really? Unlike you I remember Vietnam, Watergate, Iran-Contra, the Congressional Check Writing Scandal, Clinton’s lying under oath, etc. Only the most politically naive or subservient to party politics would utter the words “trust in government”.

    A healthy distrust of politicians is the cornerstone of democracy.

  • The Libertarian Guy (unverified)
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    Steve might I suggest that we don't need all the government we get.

    We don't need to arrest people and clog the court system because some use a substance the ruling class disagrees with.

    We don't need a law school at UO when we have privates ones. Private colleges and universities in Oregon do a better job of educating low income student than do the government schools.

    We don't need a government run transit system when opening the market to private providers could do just as well and maybe better as has been shown elsewhere.

    We could do without all the government regulations of housing which would lower the costs and help low income people.

    Just a few minor thoughts.

  • fbear (unverified)
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    Yes, cutting taxes always results in drops in unemployment. I mean, look at 1982, after the Reagan tax cuts of 1981. The national unemployment fell from 7.6% to 9.7%.

    And look at 2002 after the Bush tax cuts of 2001, then the unemployment rate fell from 4.7% to 5.8%.

    All I can say is, God save us from any similar drops in unemployment.

  • Phil Philiben (unverified)
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    Talk about rewriting History - The War on Poverty was an Enormous Success. Poverty rates in 1959 23%, Poverty rates in 1974 11% "Conservative assertions that “the ‘war on poverty’ failed” are dead wrong" The British did take the brunt of the Nazi onslaught, but they would never have been able to see it though without the Lend Lease program. You know that good old American manufacturing base that we used to have before Reagonomics. Without American Manufacturing the Brits would have never been able to hold on.

    You right wingers really got a hold on Orwell don't you: "Who controls the past controls the future. Who controls the present controls the past."

  • LT (unverified)
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    Posted by: fbear | Jun 13, 2009 8:58:37 PM

    Love your comment!

    One way to annoy the anti-taxers is to ask them a simple question,

    OK, it has been long enough now after the passage of Measure 30. Surely someone should have done a study of the jobs created after that victory by Russ Walker & Co. Where can we read the statistics about the jobs created by Measure 30: location, occupation, number of jobs created?

    That drives them nuts! They want us to take "tax cuts create jobs" on faith and not ask any questions.

  • The Libertarian Guy (unverified)
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    One issue that needs to be discussed and is constantly avoided relates to the higher education system.

    How beneficial is it to the state? How many of the students stay in Oregon once they graduate?

    What percentage of the graduates are from low income families?

    Just a couple of questions to get started.

  • (Show?)

    Buckman Res sez:

    Could it be that the real solution, providing equal opportunities to all Americans instead of wealth redistribution, was never addressed by those in power?

    1) Can't be separated -- huge wealth disparities in themselves constitute and reproduce huge inequalities of opportunity. Also, of course, "War on Poverty" was tandem with Civil & Voting Rights Acts, EEOC creation -- but exclusion of farm & domestic workers from NLRA union organizing protections undermined that & Nixon ran & won against equal opportunity.

    2) Equal opportunity ≠ absence of government in market but relates to character of market rules. E.g. 19th century unregulated markets caused repeated huge crashes & prolonged slumps, majority of workers in poverty (majority over all farmers increasingly driven off land by "free market" transportation & financial monopolies & oligopolies). Meanwhile first industrial revolution was massively subsidized by government taking land from Native peoples using publicly funded military force & giving it to RR monopolies made ipso facto into risk-indemnified speculative land barons (source of steel demand, directly & indirectly), publicly funded militia defense of slave property & later mass contracted forced prison labor labor, legal permission of usurious forms of share-cropping & other tenant contract labor = debt peonage. "Progressive Era" struggles against such abuses were only partly successful. It was only with the (pre-FDR, deepest Depression, bi-partisan) 1932 Norris-La Guardia Act, that outlawed "free" yellow-dog labor contracts making non-unionized status a condition of employment & also outlawed related blacklists, that the conditions for worker freedom of association to collectively bargain, particularly industrial mass production but also retail & other workers & revived craft trades unions, enabled segments of the working classes to negotiate relatively greater equality of opportunity. (Complicated interactions with WWII political economy too.) Reagan and after wink & nod non-enforcement of law to allow the functional equivalent of yellow-dog contracts become standard business practice had huge impact on declining equal opportunity. Benefits of organizing re-inforced by G.I. Bill of Rights (massive public spending on higher ed.), publicly-owned V.A. medical system i.e. real socialized medicine, gov't owns facilities & pays docs, nurses & other staff, not just social insurance like Medicare or single payer would be, & public & publicly subsidized veterans housing -- pet cause of "Mr. Republican" Sen. Robert Taft.

    In those days conservatives could be fiscal tightwads and still recognize government as a legitimate tool of mutual support and social self-help, i.e. community-based senses of self and individuality and individual morality, and personal responsibility tied to a sense of social responsibility -- not the aridly selfish, morally shriveled Ayn Rand individualism that dominates conservatism today.

    3) Aptly cited partial success of "War on Poverty" substantially due to Medicare & expansion of Social Security benefits & steep decline of poverty among elders. Today's anti-government conservative ideologues want your grandma to eat dog food again.

    4) When you're ready to talk about uncounted costs externalized onto the environment and related personal and public health costs of auto transport & deregulated labor conditions ("socialize the costs, privatize the benefits to the owners") get back to me about cost-efficiency. Bikes & pedestrians & mass transit and public health systems (and health insurance premium payers) are still subsidizing autos & trucks on a full cost accounting.

    5) And why should cost-efficiency be the only efficiency that matters? How about health-efficiency? Sustainability efficiency? Equity efficiency? The efficiency of the "general welfare" = common good, general, collective, national well-being, stated as a primary purpose of the formation of the Union in the Constitution, cannot be reduced to cost efficiency.

  • (Show?)

    Should have said legal enforcement of debt peonage with public money & public subsidy of benefits accruing mainly to the wealthy and middle class (then maybe a 20% minority outside of farmers) through regressive taxes.

  • rw (unverified)
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    Every time I read dialogue and diatribe these days, it's all I can do to remember I am sitting in a quilting rocker in my room, with pelts and birds and eagle feathers round me... for MY body is flooded with the visions of that morning's commute. I drive past the homeless and informal encampments every morning: rain, snow, heat and all times of day. I caught myself avoiding it once I ran out of things I could give the people to help them each morning before I got to work. I caught msyelf taking a different route to avoid seeing, and also of being seen, recognized, greeted. And having NOTHING.

    I forced myself to be a truthful woman and went back to the accustomed drive. To keep watch and be witness to the life under this bridge. I can tell you this discussion up here is .... well, I'm happy for the well off that they have the energy and hubris to keep it going.

    I just wish each day I had another sleeping bag to give out. Every single day, nearly, I see a brand new body lying on cardboards under only a blanket, a single blanket. And these are not all addicts and so forth. I also taste now, the danger and anxiety that comes and goes as the population washes through. Recently, this stretch was overtaken by large groups of younger people. It actually had a harsh, dangerous feeling. And my few interactions with youngers has been very much that of intense, hard-edged grabbing. Fierce, survivalistic in a harsh and intimidating way. And you may laugh at me, I fear for some of the older, the habituated and the softer ones out there.

    STeve, thank you for elucidating history. I pray to god that before Obama's political force and charisma are too chopped away, he can FORCE the taxation structure to shift and also enact laws that penalize the billions being kept offshore to hide from taxes. Give them no ratholes to slip out by. It is time to stop being self-serving, people. It is absolutely time to get your heads out of your asses and believe in the future. By giving more right now. And do your fair share.

  • Bill McDonald (unverified)
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    "The hat of every red-blooded American should be off to ‘em."

      I'm struggling with this, Steve. It may be correct but it sounds like there's just one big national hat. You could say, "the hat of each red-blooded American", but that would imply each American has a hat, and only one. Me? I have several hats.
    
      So let me return to the topic by saying I'm against a flat tax, but I'd also be opposed to a hat tax. Thank you.
    
  • rw (unverified)
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    "Hat tax". Heh. :)

  • The Libertarian Guy (unverified)
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    Asking about the impact of any tax supported program is somewhat hazardous, but I'll give it a shot.

    How many graduates of the Oregon system of higher education stay in state after they graduate instead of leaving and looking for work elsewhere?

  • (Show?)

    Well, L Guy, how many graduates of out of state public universities have come here & built the state?

    How many Oregon public U. grads move elsewhere & do something that benefits the nation as a whole including Oregon, because we're (more or less) a nation?

    Never mind us self-identified (correctly or not) lefties or liberals or progressives or whatever around here. Take you suggestion to the major Oregon business groups and come back and tell us what they think about it.

  • (Show?)

    Really, L Guy, your gripe shouldn't be with us, but with the drafters of the Articles of Confederation.

    I hear they've got wonderful anti-Randian narrowness reversal treatments these days -- at least if your insurance covers them. Meanwhile, be careful about the angle if you walk over a storm water street sewer grate, I'd hate for you to fall in.

  • The Libertarian Guy (unverified)
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    Gee Chris didn't mean to get you so upset, but I come from a long line of people who believe that you can't build a peaceful society by using coercion as a social tool. I kinda learned that force didn't work to well when I was in the military. So I've been looking for other means since then. BTW Rand is for beginners. Try someone else.

  • The Libertarian Guy (unverified)
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    Another BTW for Chris. In the greater Boston area there are some 60 or more colleges and universities. While many of them get government grant money and the students get grants, those schools are for the most part private and they do an excellent job overall of educating many peopl from all walks of life. Northeastren has what may be the best work study program in the nation.

    In Oregon while low income people pay a hunk of their income in taxes the state run colleges and universities primarily benefit the middle class and well to do. Maybe we should call that trickle down education.

  • LT (unverified)
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    "the state run colleges and universities primarily benefit the middle class and well to do"

    Oh really? NO state run college/university has any significant number of students who are the first in their family to attend/graduate from college?

  • The Libertarian Guy (unverified)
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    Didn't say that LT.

    The private colleges in Oregon do a better job of educating students from low income families than the state schools do.

  • fbear (unverified)
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    LG, do you have any data do back that up?

  • fbear (unverified)
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    I didn't find data specifically related to Oregon, but I did find nationwide data from '95 - '96 that shows that 24% of public four-year college students were low-income, but only 21% of private, non-profit school students were.

  • (Show?)

    Steve

    Did you listen to the Think Out Loud show on this topic? I heard it on rebroadcast and it was absolutely terrible. They invited Russ Walker to talk about economic theory. Russ is a fine political operative, but an economist he is not. And when he asserted that the "Laffer curve is accepted by every economist," i nearly drove my car into the ditch.

    Why would OPB have someone on the air who would make such a factually inaccurate statement? Why would such a factually inaccurate statement not be corrected?

  • (Show?)

    Paul, An overdetermined question. Years of post-Reagan media self-mesmerization. PBS fear of R controlled Congress budget cuts habituated. Brave war reporters who nonetheless were in grade school or even pre-school in Laffer's heyday, and who daily stretch out over an enormous range of topics, cumulatively to our eventual benefit probably, but now and then now, not so much ... As I recall, the point was not only not corrected, it was reinforced & explained.

    L. Guy, there're lots of kinds of coercion in the world. From where I sit, a whole hell of a lot of if is based on income differential power & was much reduced for a while when people who benefit disproportionately from the rules of inequality in society paid closer to their fair share to provide more equal opportunities e.g. with affordable public higher ed. Has been creeping up again last 30 years & gotten pretty bad.

    Whatever your more sophisticated sources than Ayn Rand, you're still narrow if you're arguing that someone moving out of state after public higher ed. somehow invalidates spending tax money on it.

  • rw (unverified)
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    Why are we discussing colleges and who stays here after they get their education? And so what? They pay out of state tuition, dear. SO I guess it's their right to go back where they came from with their fancy, out of state education, eh?

    Perhaps this plaint should go as a new non sequitur over on Sex With Dux.

  • (Show?)

    Chris

    I can actually point Russ to an economics textbook written by Glenn Hubbard (yes of the Reagan administration economics team) that contains not a single reference to Laffer or supply side economics.

    I was helping my daughter do some research on a paper for high school. I knew that the Laffer curve was more appropriately called the Laugher Curve among liberal economists, but I did not realize that it has been basically debunked completely.

    The real question is why OPB feels obligated to have a political activist on a show presumably dedicated to helping listeners understand the impact of corporate taxation, which is a very complex subject. There are reasonable intellectual arguments for zero corporate taxation altogether, not that I accept these,but I think Oregonians deserve to hear both sides of this important issue, not just political posturing.

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  • socialjustice (unverified)
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    FDR did some things right and some things wrong. Raising taxes may have not have done anything positive to cure the depression and many feel that it is WWII that actually broke the cycle and brought a recovery. After WWII America's economy was the only left standing. For most of the USA history previous to 1913 there was basically no income tax and the country prospered so arguing that high taxes correlate with prosperity is simply wrong. Most people prefer low taxes which is why our leaders try to raise taxes on "someone else".

  • socialjustice (unverified)
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    The Laffer curve just shows at what tax rate the government can maximize revenue. We know that that point is somewhere between zero and 100%. How can this be debunked? Those who argue that more tax cuts will lead to increased government revenue can easily be debunked, but how do you debunk the fact that there is a specific tax rate that will maximize revenues? Not to say that the role of government should be to maximize revenue, it is not, but policy makers should understand all implications of raising and lowering taxes.

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