20 January 2012

Ben Franklin Had Something to Say about this......

Friends, the BlazeBlog is an avid consumer of news. I read the Interwebs, watch the TV news and even manage to subscribe to a couple of news magazines. One of these is the insanely good The Week which offers summaries of the week's major news stories and editorials. The other magazine that we take at the house is the old stand-by TIME.

You can say what you want about the media (I, for one, refuse to call it the "mainstream" media. It's not the mainstream media. It is the media. FoxNews, you count in this too. Liberal or conservative, well written or trite garbage, it all counts as media. If you want to call it "well-funded" media, I can support that, but MSM just gets me riled up) but TIME is a classic standard; well researched, reasoned and balanced. This week, they feature an interview and article with/about Warren Buffet. Besides liking ice cream and living in Omaha, Mr. Buffet is famous for being really really really rich. Oh, he also thinks that really really really rich people such as himself should pay more taxes and he sent all of his kids to Omaha public schools. Needless to say, this guy and I are basically in ideological  harmony.

Midway through the story, Mr. Buffet mentions the need to raise the top tax rate. He says that taxes are near an all time low, and unemployment isn't changing. This made me wonder if he was right. I mean, I think that we realize that in this country there is an ideological divide between the left and the right, and that in hard economic times like these, that divide seems to mostly be about taxes.
On the left stand people like Mr. Buffet who think that by raising taxes, we could afford more education and social programs which would help to boost employment by making a better educated work force, who would earn more money and then spend it, and then you would have started an economic recovery.

On the right stand people like Mitt Romney who believe in something Ronald Reagan called "trickle-down" economics. They believe that if you cut taxes for the rich, the rich will spend more of that money investing in companies (hence a low corporate gains tax rate), and then those companies will expand and employ more people, and at this point you're at the same place as the Buffet-ites and those people are spending money and that's helping the economy.

(bitter aside: I'm not touching the fact that the system is so broken that both Romney and Buffet make substantially more money than I do and pay a tax rate about half of the tax rate I pay. Someday, but not this day)

Both sides love to say that they're right, but neither of them ever seems to ever produce numbers to back up what they're saying. So, since I had the need for speed data about tax rates and their correlation to unemployment rates, I went ahead and did what I had yet to see a politician do: I crunched some numbers. Sure, a quick Google search turned up some loaded articles and some dense economics dissertations, but I wanted to figure it out for myself. I took the BLS statistics for yearly unemployment and the National Taxpayers' Union's statistics for the top income tax rate by year.

Then, I fought with Excel for a while to make the graphs look like I wanted them to. Then, I started typing this blog post. I'm going to plop the graphs in here and talk about what I think I see for each of them. If you're interested in the raw data, you could click here and check out the Google docs spreadsheet. The charts are accessible by clicking on the tabs on the bottom.

Ok, let's start with the beginning, 1920-1938. This covers the initial implementation of the income tax (at 73%! Eat that Mitt!)(yes, I feel like I can use the familiar address at this point. It's not like anybody is reading anyway. Be honest. You're skimming) through the latter stages of the Great Depression.

Ok, what do should we see? (I fear my former econ students just had a collective seizure). Well, if we think that Warren is right, then we should perhaps see a drop in unemployment the year after a spike in taxes and the opposite (taxes down = unemployment up). In other words, the lines should form a series of X's. Well, we don't really see that. In fact, the data at the end of this graph tends to bear the Reaganites out. At taxes fall, there is an decrease in unemployment.

Obviously, job creation during the New Deal was driven by a lot of things other than just the income tax rate. All in all, I don't think that we can draw any real conclusions from just these numbers. Let's move on.

Up next is the period from 1950-1966. I skipped The War because at that point both jobs and taxes were determined by the needs of the nation as it killed Nazis. However, after the war the nation saw unprecedented private and public sector growth. Can we find some correlation between tax rates and this new-found prosperity?
If we can make any claims here it might be that a lower tax rate actually caused small spikes in unemployment. However, if we look between 1954-1964, the tax rate is unchanged, but we still see fluctuations in unemployment. 

So far, so inconclusive. Let's get down with some disco. That's right, we're headed to the Swingin' Seventies!
What do we see in this period of Nixon, Ford, and Carter? Well, in 1969 and 1970, tax rates fell, and unemployment climbed. After 1970, taxes stayed flat and there are substantial peaks and valleys in the unemployment numbers. However, if the cut-taxes people were right, these lower taxes should have at least caused steady declines in unemployment. That doesn't seem to have happened. 

Surely conservatives who have read this far will point out that a Democrat was in office and that the Arab Oil Embargo has a significant impact on joblessness in this country. I'm not going to try and refute that. However, I think that this graph starts to debunk the idea that low taxes = more jobs. How will I refute it? With a graph featuring the man who really brought this idea to the forefront: Ronald "Jelly Belly" Reagan.

The election of 1980 represents the first time that so called trickle-down economics were spread to the electorate nationwide. The Republican candidate, Ronald "the Gipper" Reagan advocated cutting taxes on the rich as a way to stimulate the economy. He also advocated deficit spending on military budgets (making him a bit of a "kloset Keynesian" if you ask me). However, the idea of trickle down has stuck with us. 

Well, did it work? Ronald "I do not recall" Reagan was in office from 1980-1988. It doesn't appear that his plan initially worked, but by the middle of his term, the jobless rate is sinking in tandem with the tax rate. Perhaps he was onto something. He was. He was cutting taxes and then borrowing money to spend not on social programs but on the military. The military developed new technologies, employed more civilians and in general spent piles of money. This stimulated the economy. It is also generally ignored at the Alter of Reagan.

The 12 years following his presidency were marked by stability as the nation adapted to a post Cold War world. Taxes and unemployment for most of the decade are largely unchanged.

2000 brought us the rise of the Neo-Con. These new conservatives had the Social beliefs of James Dobson and Pat Buchanan and the economic beliefs of Ronald Reagan. President George W "Mission Accomplished" Bush pushed a set of tax cuts through Congress with the express argument that they would stimulate the economy post 9/11. 

Did it work? Not really. There is a dip in the unemployment rate that one could attribute to the lower taxes, but the continuation of those taxes doesn't seem to have stopped unemployment from climbing since 2006. 

Listen, I'm not an economist, and I'm not all that bright, but I think I can draw two or three conclusions from all of these graphs.

1. Nobody is right if they think taxation will largely impact employment on a national level. Certainly taxation policies impact individual businesses, but nationally there is no evidence to support any claim of a strong correlation between a lower (or higher) tax rate and increased (or decreased) unemployment. 

2. Politicians are liars. 

3. It's fun to make up nicknames for Republicans. 

4. This is probably the only study of taxes and unemployment to ever reference a Quintin Tarantino movie. What, you didn't see it? Go back and search.

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