Taxes Through a GDP Lens: Revisited

I’m showing today an updated version of a graphic I showed on  December 21 of last year. Results for 2011 have been added to it, thus it is more up to date. Also shown on this graphic is the top marginal tax rate over the 1960-2011 period. A key point of the last posting (link) was that the tax rate appears to influence tax revenues and Social Security contributions not at all, but tax rates are certainly influenced by other events in the economy. I said:

Recessions, booms, and busts, however, do show an influence. Booms and busts? Well, the biggest rise in tax collections as percent of GDP came during the dot-com boom, the biggest drop in the dot-com bust. And the next up-then-down is the housing bubble.

The interesting things to note here is the up-turn of tax revenues from 2010 to 2011, signaling recovery—if not massive growth—and the down-turn in contributions to social security in the last year. That dip was caused by a law passed in 2010 but effective in 2011—lowering payroll taxes.

What with top tax rates having no visible effects on taxes, the hullabaloo about rates today are entirely off the mark. They represent political realities, not economic. The notion that raising rates will cause the economy to dive are belied by this chart. Taxes rose sharply from the 1988 to 1992 level. So that happened? Tax revenues went for the sky—for an entirely unrelated reason.

The data I am using comes from the BEA using the facility located here. Following links from there, I used Table 2.1 for Personal Income and Its Disposition and Table 1.1.5 for Gross Domestic Product.

Where is the __________!

What people often say is “rage.” Where is the rage! The context here, of course, is that something quite outlandish has happened, some shocking news has surfaced. But there is no visible reaction to it. The public is grooving instead on Christine Beatty, again, she who, like years ago, exchanged sexy e-mails on (Horror!) city-owned communications devices with the deposed, disgraced ex-Mayor of Detroit Kwame Kilpatrick. Or they groove on “Sports Sightings.” Or they groove on the “K-Pop Star among us.” Don’t ask. I haven’t figured it out yet either (link).

A more refined form of that question would be “Where is the Informed Voter?” Quite astonishingly shocking information appears almost daily, but it doesn’t even make it into the papers, never mind produce a rash of letters, never mind a march on Washington. And to that over-simplification—which is what “informed voter” really is—might be added, how wide-spread among informed voters is a sufficiently sensitive cultural and moral understanding necessary to weigh the mountains of facts out there. Herewith a couple of shocking charts from a source I cited two posts back, a Congressional Research Service report (link).

The first of these shows us what the top tax rates were back in now sighed-after decades when things were good—alongside the rather shockingly low tax rates on capital gains, the form of income the very rich use to amass their wealth. The second graphic shows the rather phenomenal rise in the share of total income of the super-rich 0.1 percent and of the stratospheric 0.01 percent of the population.

Did we see these graphics in our papers? No. They were crowded out by pop stars, sports, and Netanyahu.

The really meaningful questions? “What’s the point of a universal franchise?”— if the average voter, looking at such images, can’t even make them out, never mind discerning what they really mean. And “Why bother with democracy?” is another. When things get really bad enough, there are still pitchforks. We have one in the garage, but I wonder how many other people do.