Tuesday, March 19, 2013

No, Elizabeth Warren, we can't go back in time....

Following up on the minimum wage fraud being pushed by the Left, we have Senators like Elizabeth Warren, who epitomizes the Demunist mentality at its most Commiecratic, making claims like this:

Sen. Elizabeth Warren (D-Mass.) made a case for increasing the minimum wage last week during a Senate Committee on Health, Education, Labor and Pensions hearing, in which she cited a study that suggested the federal minimum wage would have stood at nearly $22 an hour today if it had kept up with increased rates in worker productivity.
"If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour," she said, speaking to Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of minimum wage. "So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn't go to the worker."

It is amusing to see dingbats like Elizabeth "Affirmative Action Paleface" Warren make these sort of claims. This is a common canard with the economically illiterate Left, that high wages and high corporate taxes can work just fine: "Back in the 1950's, we had 90% top earner tax rates, and everything worked well!"

It is amusing to see pipedreamers on the Left, who chide people on the right for “wanting to go back to the 1950′s” (culturally), instead want to go back to the 1950′s economically, when THAT world clearly no longer exists.

Let’s see now, in the 1950′s, the Cold War was a raging, there were no investment opportunities in Maoist China or Soviet Russia, the “emerging markets” were post-colonial battlefields, and Europe and Japan were rebuilding from the rubble. High corporate tax rates in the USA were feasible because there wasn’t anywhere else for them to go…..

As for wages, in a globalized economy, American workers can't pull down the wages today that they could in the 1950's, especially with the sort of immigration policies that Elizabeth Warren and her ilk are condoning.

Today, capital can move with the click of a mouse, so it really isn’t a surprise that Warren Buffett’s investments are taxed at a lower marginal rate than his secretary’s wages.
Moreover, what was the *real* tax rate in those glory days?

Many things were deductible back then that are no longer today, from “Meals And Entertainment” expenses at 100%, to Credit Card Interest, to Medical Expenses, which were not subject to an Adjusted Gross Income “floor” of 7.5%, which this Obama Administration has hiked up to 10%.

So the top marginal rate of 90 percent never actually happened to anyone.

And by the 1960's, after Kennedy's tax cut, no one ever paid 70% of their income in taxes either. When those rates were in effect they were offset by a wide variety of tax deductions that don’t exist now. For instance, we make a big deal out of the home mortgage interest deduction, but back then all interest was deductible — mortgage, auto loan, credit card! Detroit was making money hand over fist manufacturing shoddy cars with expensive union labor because a new car was a valuable tax shelter for the upper class, and even the middle class.

When you take out a loan, the initial payments are nearly 100% interest. So if you had a lot of money and wanted to pay less taxes, you would simply buy a new car every year and trade in the old one. Then your car payments became essentially fully tax deductible. The tax code was swimming with other tax deductions and there was a big industry in exercising them.

In other words, no one paid at a 70% tax rate. The 70% tax rate was what you paid on the small amount of money that you were unable to shelter.

Implementing the 1960s tax rates without the corresponding tax shelters would be a disaster for the economy. The high marginal tax rates had a side effect of encouraging economic activity that avoided the tax rates. Without the tax shelters, the high tax rates would hoover money out of the economy.

Real estate was also then a much bigger tax dodge than it is now. Depreciation – paper losses — could be deducted at a double declining balance rate (rather than today's more modest MACRS formula) from ordinary income until none was left. It was this reality that originally gave rise to the Alternative Minimum Tax in 1969, once intended only for a few thousand wealthy individuals, which now a pain in so many middle class backsides. Highly leveraged deals often produced tax losses to investments in ratios like ten to one.

"Mad Men" is just a TV show. To the extent that world ever existed, it *no longer exists*.

Anyone who tries to tell you the tax rates of the ’50s- ’70′s can be directly compared to today’s rates either doesn’t really know what s/he is talking about or is trying to mislead you.

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