Monthly Archives: August 2011

Herbert Hoover and Taxation

Sylvia Nasar has an animated guide out to her book Grand Pursuit: The Story of Economic Genius. At 2:08 she says:

1931: President Herbert Hoover responds to the Great Depression with tax cuts. . .

As far as I can tell there are three significant pieces of legislation concerning taxation under Hoover: the Joint Resolution No. 133 of 1929, the Smoot-Hawley Tariff of 1930 and the Revenue Act of 1932.

It is true that there was a one year tax cut under Hoover. The Joint Resolution No. 133 of 1929 reduced the total marginal individual and corporate income tax rates by 1 percentage point for one year.

Though, there were also shocking tax increases. The most visually shocking changes due to the Revenue Act of 1932 were the increases to the total marginal rates, such as the bottom going up by a factor of more than 10 times and the top going up by a factor of more than 2.5 times. It seems to have also increased the number of tax brackets from 23 to 55.

It also permanently increased the corporate tax rate from 12% to 13.75%, with it being temporarily higher at 14.5% for 1932 and 1933. There were also excise tax increases that were prominent in revenue effects, such as a 2.5% tax on all manufactured articles.

As well, the personal exemption for single persons was reduced by $500 and $1,000 for married couples. In regards to purchasing power, $500 in 1932 has the same as $7,958.25 in 2010, and of course the adjusted $1,000 is double that. Also, an earned income credit which reduced tax liabilities by 25% for some definition of lower incomes was eliminated.

There is also the Smoot-Hawley Tariff of 1930, though there appears to be confusion as to the actual extent of the increase to the tariff level.

I am unsure of why Nasar’s video promotes her book in regards to Hoover in this way. While she is technically and narrowly correct, it ignores that it is dwarfed by the rest of what happened under Hoover concerning taxation. After all, clearly the time of President Hoover is prominent in the history of federal taxation in America not for a tiny and temporary tax cut but instead for large and long-lasting tax hikes.

Thoughts on Moral Meltdown

This is the first time I’ve come across Jakub Augstein. His article A Society on the Verge of a Meltdown looks at the moral meltdown of the rioters and looters and is, I think, wrong in many ways.

First, he attacks those who emphasize the individual as the basic unit in society and the economy. His view seems to be more top down, in that social problems and economic difficulties are inflicted on individuals. I think it is more bottom up, because society and the economy are just abstractions, complex webs of social and economic relationships that consist of flesh-and-blood, and acting and different individuals. They do not have an existence independent of them.

Second, he charges that the market lacks morality. I think there is a very strong moral case for the market, also known as the free market or capitalism, as it is simply voluntary economic exchange, and so inherently peaceful, fair, and mutually beneficial.

Third, I believe he misunderstands why society is “broken”. Unfortunately, there are indeed many “broken” people. The same therefore goes for much of society and the economy. As statists, their beliefs, advocacy and actions are far less moral throughout and overall than they realize.

Fourth, he mistakenly blames capitalism for material inequality and treats such a human condition as a grave injustice. In the market, in words of Ludwig von Mises, “It is the consumers who make some people rich and other people penniless.” Sadly, capitalism and the people have been under assault by the massive interventionism of the state. As well, humans simply aren’t equal in conditions in that people have widely varying inherent, environmental and developed differences, chances and the ability to develop relationships and opportunities to engage in exchanges.

Fifth, he embraces the notion that the true consummation of society lies inside the legislature of the state and calls for the power of the state to be used towards equality. This is definitely horrifying to me, because the members of the legislature aren’t true representatives and the state is an attempt at a territorial monopoly of unjust violence, and as such of aggression, predation and parasitism, and so when compared to voluntary arrangements it surely isn’t the apotheosis of society. Again, except in natural individual liberty people aren’t equal, and so the calls for statist attempts at any other equality come off to me as revolts against nature and reality and ultimately totalitarian and antihuman.

The truth is that the state is the most organized and violent enemies of humanity, individual rights, civil society and the market, progress, prosperity and civilization. They have beat down and herded the rest of humanity with such weapons as: propaganda, regulatory protectionism, taxation, intellectual monopoly grants, and bailouts; control over money and banking, lands, infrastructure, education and health and medical care; vice prohibitions, the police state, the military-industrial complex, conscription and wars; subsidization of poverty, unemployment, irresponsibility and sickness; barriers to international trade of goods and services, flow of capital and migration of people; and more. The state is not the answer to moral meltdown; it is capitalism that points the way to a future of greater harmony and plenty.

Jeffrey Miron and Taxation

In his article Why Warren Buffett is wrong, Jeffrey Miron writes about tax policy. While he thankfully comes out against higher tax rates for super incomes, sadly he also says:

Most importantly, singling out the super-rich distracts from the real problem: the myriad policies that make no sense in the first place because they inhibit economic growth and that simultaneously redistribute from low-income households to the middle and upper classes.

The deductibility of home mortgage interest encourages excess investment in housing. High-income taxpayers get the benefits, since low-income taxpayers own little or no housing and do not itemize deductions in any case.

The favorable tax treatment of employer-paid health insurance generates overconsumption of health care and contributes to rising health care costs. The benefits go mainly to middle- and upper-income households, since those without jobs get no employer-provided benefits.

Numerous loopholes for favored industries in the corporate tax code distort the market’s investment decisions and reward the well-funded and politically connected.

I think Miron is wrong here. The real problem and distortion is the state itself and in this instance the power of taxation. Tax breaks make it easier for some people to escape from having more of their property confiscated and blown by the state. I think this is cause for some celebration.

The only way tax breaks should end is with the elimination of the tax. Until the tax is eliminated, there needs to be more tax breaks, such as for non-employer health insurance, renters, vehicle payments, childcare, gasoline, and beyond. Admittedly, all tax cuts aren’t equal and perhaps tax rate cuts are superior.

This reminded me of an anonymous comment I once came across over at EconomicPolicyJournal: Tax law with loopholes is like the Berlin wall with doors and windows.