Reply #7: Decreases in government revenue after 1929 were not primarily due to tax r [View All]

[Jim__]

"In 1929, when the Great Depression hit, the top marginal tax rate was 24 percent.

"In 1932, the marginal tax rate went up to 63 percent on top incomes. In 1935 Roosevelt pushed it up to 79 percent, and we started at five percent, and the exemption was lowered, so more people were paying taxes. ... In 1929, you were telling them, you get to keep three-fourths of whatever you make. Now you're telling them you give more than three-fourths to the government. ... But do you see why the depression is prolonged? Who's going to invest to create the jobs to get us out when you're being taxed 79 percent? Do you think the revenue then is going to go up when the tax rate is 79 percent? We raised in 1929 over $1 billion. It was almost $1.1 billion in income tax revenues. In 1935 when the tax rate was 79 percent, our take for the government on income tax was $527 million - less than one-half of what it was in 1929."

The basic problem with this argument is that it's a "post hoc" argument. Why did we have a depression in the first place? With the top tax rate at 24%, why did the Depression happen? Essentially, the fact that the Depression occurred when the top tax rate was 24% demonstrates that either economics is not just a function of the tax rate; or a top tax rate of 24% causes disastrous results. The decrease in government revenues after 1929 was not primarily a function of the change in tax rates.

Some GNP numbers (billions per year) from "Leakage" by treval C Powers:

1929-30 203.6
1930-31 183.5
1931-32 169.3
1932-33 144.2
1933-34 141.5
1934-35 154.3
1935-36 169.5
1936-37 193.2
1937-38 203.2

Does the fact that GNP increased after the tax increases of the early thirties prove that increasing taxes increases GNP? It does if we follow the same type of argument that says government revenue decreased due to the tax increase.