Thursday, November 13, 2008

Tax and the 1930s depression

The Economist recently published an article entitled "is tax back?" As the global economic crisis spreads its dark wings, there is much talk of tax: whether or not to cut taxes in the short term to stimulate economies, and the possibility of higher taxes in the longer term as governments seek ways to pay for the clean-up on the mess we are now confronted with.

TJN doesn't generally advocate higher or lower taxes (that's for voters to decide) but we thought it would be interesting to look at what happened to highest marginal income tax rates in the US through, and after, the last depression in the 1930s (and we're not comenting here on whether a depression of that magnitude is possible or likely, either). This graph shows a steep increase; if our data source is right then the lowest individual income tax rate rose even more: by a factor of 12. Today's blogger hasn't analysed why the graph behaved like that, or what lessons can be learned from that episode. But we think you'll agree that it is at least interesting.

Hat tip: here.

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