One reason the Depression lasted until World War II ... is that the New Dealers sabotaged their own plan. With one hand the New Dealers gave, spending to stimulate the economy. In fact, they put through the same kinds of infrastructure projects that Obama and congressional Democrats are considering today. With the other hand the New Dealers took away, by raising tax rates -- just as the new president and Congress are likely to do in 2009.
President Franklin D. Roosevelt specialized in persecuting the rich via taxes, telling the upper class, point blank, that they had ``met their master.''
The Clinton years also offer a tax story. President Bill Clinton raised taxes, of course, but not back to pre-Ronald Reagan levels. His late 1990s capital-gains rate cut, enacted with the Republican Congress, helped make the decade sizzle.
In Ireland, unemployment began to drop following cuts in the personal income tax. It rose again before falling dramatically as the Irish government cut capital-gains taxes and then corporate taxes. It's worth noting that Ireland was enduring Depression-level rates of unemployment -- 16 percent to 17 percent -- at the outset of its tax experiment and managed to get down to the five- percent range even as the nation found its way to a budget surplus.
So what might an ideal American reform look like?
It would include a lower capital gains rate, to be sure. This should be a no-brainer, since capital gains revenue seems especially responsive to rate cuts. The current slump is a great argument for Obama to give up his campaign-trail suggestion that he would increase the capital- gains rate to as high as 28 percent.
What about the hoped-for recovery of 2009? The planned tax increases would diminish the effect of those billions for infrastructure, just as tax increases undermined the Public Works Administration or the Works Project Administration in the 1930s. ... the Democratic Party will now have to decide which is more important: its eagerness to trash the Bush-Reagan tax legacy, or its eagerness for recovery.
Wednesday, November 12, 2008
Amity Shlaes has a great article today that draws on the lessons from the Depression.
Posted by Scott Grannis at 11:13 AM