FaceBook Fun

Yesterday we were understanding the Blue States suggesting that they we wrong rather than evil.  Today we have evidence of how wrong.  On our Facebook feed there was a picture of Ike and the following words (It doesn’t copy so we had to transcribe.  We’ve taken it out of all caps):

Dwight D. Eisenhower, corporate tax rate: 90% [source?  This seems way high.]

Why?  Because high corporate tax rates create incentives for big business to spend [non-existant] earnings and expand (i.e.:  new locations, new hires, new equipment, and product R&D) which are deducted from taxable earnings, thus driving wealth [income rather than wealth is taxed] to a lower tax bracket [individual tax rates are extremely high in this period].  Better to spend a majority of earnings on expansion than horde it and pay Uncle Sam 90% of it.  It’s not Communism,  it’s responsible economics.

Well, this gives us a lot to talk about.  We have made a few comments in the text.  Then let’s start with it’s not Communism.  OK, it is not Communism but not being Communism is not enough to make it a good idea.  It was and still is bad economics.  Harry and Ike’s years are subject to Williamson’s lament.  They did lots of good things as president but they missed lots of economic opportunities.  High taxes on corporations and individuals were part of the problem.

Second, let’s talk about economic performance during Ike’s years as president.  We will round it off to calendar 1953 through 1960.  During those eight years there are are three years of really substandard performance, less that one percent real GDP growth, there are three years of Obama plus of 1.99 percent to 2.74 percent, and two really good years.  Considering the war-torn state of most of the rest of the developed world, this is very unimpressive.  It is no surprise that JFK had other ideas.

Third, much of it can be understood as confusion about income, wealth, and timing.  Income is taxed but wealth is not other than the death tax.  When you tax the income isn’t left to spend.  If you were to tax ninety percent of it there would be little left.  New locations and new equipment are assets rather than immediate expenses so they don’t reduce taxes.  More likely they lead to higher future income.  That is good for lots of folks but it is less likely to happen in a high tax environment.  High corporate tax rates will discourage such investments because there is less cash available and a lower after tax return.  New hires only impact income as they earn wages.    Corporations will minimize hiring in a high tax situation.

There are lots of folks that don’t understand economics.  Ike had problems with economics.  Because folks liked him the Blue state folks want to adopt him.  How about if they (and we) go for JFK instead?  We understand that Reagan’s successes are too recent for the Blue State partisans to accept but JFK should be OK.

 

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