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Comment by wanorris | Hacker News Reader

Don't you think that the top tax bracket being slashed from over 70% to well below 50% had something to do with it as well?

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Less than people think. Back when taxes were so high, the rich were really good at tax avoidance. So the rate doesn't tell you the whole story.

As one of the people whose opinion about working for a large company changed during the 1970s, I know I didn't consciously think about tax rates. (It's possible they affected me unconsciously though, via the examples of people who'd cleared more after tax due to lower rates.)

"Back when taxes were so high, the rich were really good at tax avoidance." first, [citation needed]. Second, compared to now? Third, is it relevant? how? I see you glossed over that. It's like hacking..and painting..isn't it.

If the rich didn't actually pay the percentage in taxes as given by their tax bracket, then their tax bracket isn't relevant because it isn't something that was actually followed in practice.

Also, capital gains tax is really. You'd have to make less than $8,500/yr to be in a lower income tax bracket. This hasn't always been the case. So, one easy, legal way to pay less in taxes is to get paid via capital gains.

Back in the 1950s, the rich were really good at tax avoidance. All they had to do was to donate more than their total income to charity. (The so-called flying nun tax exemption.) This was doable because when you donated items that appreciated in value, you didn't get taxed on the increase in value, but got to claim the whole value.

So if your parents had bought a lot of art, you could donate the art. Better yet you could donate a million dollars to a charitable foundation you had, have them use it to buy a piece of art from you, and then donate 4 other pieces of art which are now valued at $1 million each.

The result was a huge run-up in the value of things like art, and a simultaneous increase in public art for display. When you visit the Metropolitan Museum, you're basically seeing the benefits of a tax dodge.

Can you recommend any good books or papers on this phenomenon?

It is impossible not to notice that this trend started when Reagan took power and neo-liberalism was adopted as the reference in economic policy. The theory: More wealth produced, better for everybody. The practice: More wealth produced, better only for the top earners.

To the contrary, Reagan was inaugurated in January 1981. The trend had already changed before that. There were major changes to our economy in the late 60s and 70s, including the "great society" programs of Johnson and Nixon, and the stagflation of the Nixon and Carter (and into the Reagan) years. I'd look into those things for a root cause, if I were looking. Which is not to say that Reagan's policies didn't possibly make things worse, too ;-)

Well, Reagan does get some of the blame. He made changes to tax policy in 1986 which caused companies to replace non-wage compensation (e.g., company cars) with taxable income.

Since taxable income is included in inequality statistics, but company cars are excluded, this caused a big spike in inequality in 1986.

http://www.scottwinship.com/1/post/2011/03/what-would-it-mea...

To the contrary of the contrary - if you look at the chart, you'll see that in the late seventies and earliest eighties there were stops to the growth of wages, but they coincided with stops to the growth of productivity. It is well after Reagan took office that the two graphs start diverging - the productivity rises steadily, BUT wages don't.

As to the economic woes of the seventies, how much did they depend on policy, and how much did they depend on the oil crises? Anyway, I don't argue that everything was perfect before Reagan. I just argue that wages stopped being tied to productivity after him.

"The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion."

--> http://www.nytimes.com/2011/03/25/business/economy/25tax.htm...

Also: "Back when taxes were so high, the rich were really good at tax avoidance."

I have yet to see any time-series on tax avoidance or loopholes. If you do have some data on this claim, please give a reference; otherwise, you know...

Go back further. 70% itself was a major slash by JFK (a very rich person from a very rich family) from the previous 90%+ in the 50s.

Before that, there was no point in being paid more. The only thing that made sense was to take pleasure in the organization that you ran.

Plus there was always investing in other companies, spreading capital, creating new sources of wealth.

Wrong period, but wasn't Jay Miner financed by some dentists when designing the Amiga, initially? This is the sort of thing I am thinking of.

Then there was a period in people largely borrowed against their house/assets to start a company. That is now closed to many.

On the flip-side (looking through pg's eyes), the cost of starting many classes of companies has now essentially dropped to just the time required, as much of the infrastructure, process, software required is free or can be generated or outsourced cheaply.

You were confusing the top income tax rate with the effective tax rate. When the top income tax was 91% (from 1951-1964), the capital gain tax was 25%. So the effective tax rate paid by the rich was always the same, infact the rich pay more in tax today at the current top 35% rate than when it was 91%!

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