|Hopefully I can get you all on the road to rational, informed|
Anyway, whenever the subject of taxes comes up in discussion and debate, particularly increasing the marginal income tax rate on the "rich," I've noticed that the Democrats often bring up the marginal tax rates during the 1950's. The richest Americans in the top bracket were taxed at or above 90% for the whole decade. To be in the top bracket during the 50's meant that your annual income had to be $400,000 or greater.
The logical conclusion, as they see it, is that when the government taxes the rich heavily and spends that money, the economy benefits immensely. Afterall, the 1950's is considered a boom period (for the most part), and the government did spend a lot of money. There are two factors, however, that are overlooked.
Thing one is that what the money was spent on is not mentioned often (although to his credit, Jersey did mention this the other day). The money was spent on projects that improved America's infrastructure: highway construction, grants for airports and the like. So yeah, that was money well spent. There is no argument against the notion that an improved infrastructure can spur economic growth.
But what is the government spending most of its money on these days? Over 50% of the budget goes to entitlements. Social welfare programs don't really spur growth, and they're not designed to spur growth. They're designed to keep people afloat. Sorry, but doling out a clothing stipend to some idiot who blows it all on a new pair of Jordans (yes, that does happen) is not the same as dropping money on building a sorely needed highway.
As Joe mentioned, we had budget deficits during World War II. While true, those deficits did not necessarily lead to the prosperity of the 50's. When the war ended, a lot of people who found work during WWII found themselves out of work again. So it's not as if the WWII spending was the panacea to the depression. In fact, the Federal Government was deeply concerned about inflation, so they adopted the seemingly crazy notion of keeping a balanced budget.
An excerpt from this article sums up quite succinctly the reason for our success during the 50's:
A commitment to classical budget principles was adopted by the Federal government in an attempt to reduce the size of the Federal budget, improve operating efficiency of departments, and to reduce waste. A reliance was put on private investment in the belief that economic growth would therefore take care of itself.Lo and behold, that's what they did. In 1958:
In fiscal year 1958, Eisenhower's budget of $73.3 billion sparked debate because it marked an increase of $2.8 billion over the previous fiscal year, despite analysts' predictions of a slight surplus. A Battle of the Budget ensued over the highest expenditure proposal in peacetime, with fears of an upcoming depression if spending continued at current levels.That year, they had run a $12 billion deficit, and unemployment rose to 7.5%. The budget had grown to the largest Federal Government expenditure during peacetime ever, ever. And as the budget grew, growth slowed. Why?
I don't know, to be honest. But government spending does not automatically produce huge economic growth and/or prosperity. Running deficits certainly has not helped us. We've been running budget deficits ever since GWB took office, and what do we have to show for it?
"But Jack, that's because the money was spent on war! It was spent on things that don't spur growth!" Hmm, that argument seems familiar . . .
So there you have it. It doesn't seem so cut and dry to me. Perhaps I'm leaving something out? All I know is that the logic doesn't seem to hold up. If you read the article, the fear over budget deficits is not a new thing. Eisenhower was just as concerned about inflation as many people are now, and many people feared that huge deficits would lead to a depression.
Given that we've had high deficits for the last 12 years and have yet to see meaningful improvement, perhaps it's safe to say that they were on to something in the 1950's?
*Taken from data provided by the National Taxpayer's Union