Hacker News Reader

Comment by m12k | Hacker News Reader

The US experienced massive growth in the 50s and 60s while having very high tax rates. The US, until recently had a higher corporate tax rate than many European country - the latest US tax cuts brought it down to the same 21% that my native Denmark has. I'm sorry, but this 'deregulation and low taxes will fix everything' myth has been so thoroughly debunked by now that I'm sad to see it rearing its ugly head in an otherwise thoughtful and fact-based forum like HN. What is it with this obsessive focus on supply-side economics, and complete disregard for the demand side? If the middle class has no money to spend, it doesn't matter how cheap the goods are to produce.

And China, if anyone, has shown how protectionism, and making sure outside companies can only reach your internal market if they play by your rules, and favoring national companies over international ones, is a winning strategy in the 21st century.

View on HN

>The US experienced massive growth in the 50s and 60s while having very high tax rates.

The effective rate actually paid by the top 1% was around 42%, which is not much higher than now: https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/. . The US had also emerged as pretty much the only unbombed industrial country after a global war, giving it a significant advantage.

>so thoroughly debunked by now

Debunked where? Here's a random paper I found showing a strong correlation between economic freedom and GDP: https://mpra.ub.uni-muenchen.de/49220/ . https://www.cato.org/sites/cato.org/files/pubs/efw/efw2019/e... also has a graph on page 18 showing a strong relationship between economic freedom and income per capita.

>What is it with this obsessive focus on supply-side economics, and complete disregard for the demand side?

Demand is a factor in short-term market dislocations, but demand cannot create long-term economic growth. Growth requires that some of the value created be saved and invested, in order to increase capital, and no amount of demand will compensate for a long-term fall in investment.

> The US had also emerged as pretty much the only unbombed industrial country after a global war, giving it a significant advantage

Ding-ding-ding - you hit the nail on the head! The US' competitive advantage and special position in the world, including all those fortune 500 companies, doesn't come from its special adherence to laissez-faire capitalism, it comes from other historic advantages. The supply-side trickle-down cult didn't start until the 70's and incidentally real median purchasing power in the US has been in decline ever since.

> Debunked where? Here's a random paper I found

Here's a very non-random book I found: https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

Also, do I really need to remind you that correlation is not the same as causation?

>Here's a very non-random book I found: https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

According to Wikipedia, that book makes the argument that economic equality will grow over time. It doesn't show that countries with more economic freedom grow slower. To copy from the "Criticisms" section of that wiki page:

" According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens.[36] Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality." "

>Also, do I really need to remind you that correlation is not the same as causation?

Indeed, fortunately we also have economic models suggesting such a relationship should exist so it's not just blind correlation.

The danger of inequality is not something new, and the problem isn't that someone is super-rich, the problem is that median purchasing power is going down, because economic growth is not going into the hands of the lower and middle class, and this is causing demand to fall in the market, leading to an inevitable economic downturn. The dangers of this were discovered a century ago during the Great Depression, and are well understood and not really considered controversial anymore: https://en.wikipedia.org/wiki/Keynesian_economics

> Ding-ding-ding - you hit the nail on the head!

Meta-comment: I find this style of argument (make one claim, have the claim debunked, make a different claim and say "see I was right") to be very annoying, and I wouldn't mind if it disappeared from HN.

You know what - I agree, the tone here on HN is important to me, and I'll try to do better in the future. In my defense, the comment I was replying to had linked to a bad-faith site claiming the tax rate of the wealthy in the US has not gone down since the 50's, which is only true if you don't count the massive number of loopholes that have been introduced over the years - the effective tax has gone way, way down (Warren Buffett even commented on this a few years ago, how he was being taxed at a lower tax rate than his secretary). That, combined with the way they simultaneously presented what I perceived as a counter-argument to their own previous comment, caused me to jump on that instead, and probably sounded a bit smarmy in the process - I'm sorry for that. FWIW, here's a source for the effective tax rate of the wealthy, which I probably should have linked to instead: https://www.nytimes.com/interactive/2019/10/06/opinion/incom...

I will very happily argue for any of the points I've made, and I promise not to change topics and stay with a single point as long as is needed.

These people should look at Portugal. One of the highest taxers in Europe and our economy is crap.

The middle class is basically paying for the rich and poor and they don't have money to spend on the economy. We can't support our companies because their products are actually more expensive than outside products (companies pay a lot of taxes too).

It's more than known by every good economist that overtaxing isn't good for any economy.

There was talk in at least the London tech scene two or three years ago about Lisbon becoming some sort of tech hub. (Personally, I'd love to move there but I'd have to learn Portuguese) But some companies that did try Lisbon out seem to have pulled back. Last I heard it a large reason was because the 'work ethic' of the Portuguese left something to be desired compared to London.

This comment is not only based on anedotical evidence, but demonstrably wrong [0] (compare hours worked between Portugal and the UK - these are significantly higher in Portugal) and perpetuating stereotypes with regards to Southern European countries.

[0] https://en.m.wikipedia.org/wiki/List_of_average_annual_labor...

I'm quite sure I did not present it as a fact. It's just the feedback I got from folk who tried it out. YMMV.

afaik Portugal is on par with the EU average on income tax and slightly above corporate tax. Of course because of the low average wage it the high bands of taxing start much earlier than the rest of the countries. But lowering taxes does not increase wages, companies will always adapt to pay the least possible and if the wages are lower they will just pay less.

And in all the countries the middle class pays for the rich and poor... unfortunately.

Who you tax is more important than how much you tax. If you levy your tax burden entirely on the poorest aspects of society than of course its going to look bad.

The US is largely socialism and profits for the corporations and free market absolutism and costs for the working poor.

And still US corporate taxes are among the highest in the world, while the working poor benefit from various tax breaks.

https://www.reuters.com/article/us-usa-tax-corporate/many-bi...

Doesn't seem like it to me.

>...The US is largely socialism and profits for the corporations and free market absolutism and costs for the working poor.

These kinds of statements don't really add much to the debate - they sound like political slogans. To add to some light instead of just heat to the discussion, it is better to explain what you are saying. How are you defining poor? What tax rate do you think this group should pay? What tax rate do you think corporations should pay? How does that compare with other countries? etc.

(I don't mean to single out this particular posting, as I have seen political slogans used throughout this thread.)

Portugal’s tax take as a percentage of GDP tracks pretty closely to the OECD average. France, Sweden etc have significantly higher rates. https://data.oecd.org/tax/tax-revenue.htm

That is true, but Portuguese citizens make a bigger effort to pay those taxes than French, German, Swedish... Tax take as a % of GDP doesn't tell the whole story.

Er...I might be misunderstanding something here - but it literally does?

Something like tax rates statistics wouldn't tell you whether those taxes are actually paid - but tax revenue statistics do exactly this.

I will provide a clarifying example:

Imagine a person in Portugal has a 1000€ salary, and the state takes 40%, the person has 600€ to live.

A person in Germany gains 3000€, the state takes 60%, the person has 1200€, double the Portuguese.

Cost of living in Germany is higher, but not twice that much. And the cost of living already factors in some taxes, such as VAT, so it's not an apples-to-apples comparison.

Ah, now I understand what you meant with "effort", i.e. that the disposable income after taxes normalized for purchasing power would be lower in Portugal than e.g. in Sweden, right?

Hm...that's a good point actually - net PPP-adjusted household displosable income is definitely lower in Portugal: http://www.oecdbetterlifeindex.org/topics/income/

Right, nobody actually paid 60%. They used their money to build factories and create jobs instead. Which drove growth. Now they can just keep the money.

The actual taxes paid aren't as important as the incentives they create.

> And China, if anyone, has shown how protectionism, and making sure outside companies can only reach your internal market if they play by your rules, and favoring national companies over international ones, is a winning strategy in the 21st century.

The winning strategy depends very much on what stage of economic development a country is at. Developing countries often benefit from some level of protectionism (this is the "infant industries argument," which Alexander Hamilton proposed), but developed countries benefit much more from lower trade barriers. In 20 years, it will be China that is pushing for developing countries to lower their trade barriers.

In the 50s it was a lot easier to evade taxes as well. Less electronic systems that are easier to track and also a lot of loopholes in the system. https://www.latimes.com/business/la-fi-nocera-tax-avoidance-...

Reply on news.ycombinator.com