> In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".
Exactly, and fairness keeps getting shifted along this scale. Here's an example that comes to mind when I think of taxation: let's say you have a country of 1 million people, and with total government expenses of $1 billion/year. The first taxation idea that comes to mind (and perhaps the fairest) is that every citizen pays exactly $1000 each in taxes. Now some people are going to scream "that's no fair, some people don't make that much per year, you want them to starve?" So then the next idea is "how about everyone pays 10% instead, so rich people pay more in raw dollars, but everyone still pays the same percentage?" The reply becomes "but that's still not right, rich people can afford to pay much more". Eventually, you wind up with a progressive tax that tops at around 90%, and nobody thinks this is fair (all in the name of fairness).
Actually, I don't have a problem with top tax rates that high on say income over 10 million a year. People don't make 50 million a year living in a hut in the middle of nowhere. It's not as obvious as welfare, but without things like IP law and roads you just don't get that kind of concentrated wealth accumulation outside of warlords which are really just another form of government. People argue that it's bad for the economy, but the US has actually had significantly slower economic growth when the top tax rate was below 70% (1982 to now) than when it's above 70% (1936-1981).
My discussion was around "fairness". Do you think it's "fair"? Making some people pay more than others (unequal amounts) can be considered unfair (everyone paying exactly $X is also fair). Here's an analogy: when 5 friends go out for dinner, does the richest one pick up the tab, do they split it up equally, or does every individual pay for what he/she eats? You can argue that each of those options is "fair" in some way.
Depends, but a better (though still flawed) analogy is this: before dinner, everyone agreed and knew that if someone brought twice as much cash in their wallet to dinner, that person would pay more than everyone else but also get the best dish, the best view, and a massage while waiting for food to come out. And everyone had a chance to opt out of going to dinner before heading out, or to choose to not get all the perks.
Given that, it's sort of ridiculous for Fred to complain after dinner that he has to pay more than everyone else, and then to try to guilt trip them into paying an equal amount as him.
You seem to have completely missed the point of the scale described by strlen which is that people have different definitions of fairness and continued to argue that yours is the only one.
I would be very cautious drawing any firm conclusion from this kind of simplistic analysis.
First, as always with economic analysis, many other things are changing at the same time (inflation, trade, technology, etc.). Any one or some combination of other factors could actually be driving this and you would not know it. Additional event studies and evidence from other countries would be a start.
Second, you are effectively cherry picking your sample periods. 1936 was the very bottom of the Great Depression. Why don't we also look at the period before the US had income taxes, other countries, etc.
Third, tax rates are only one part of tax policy. Effective tax rates would be a start but then how to measure income when there is a big incentive to hide it.
Lastly and probably most importantly, what is the logic here. How exactly do high tax rates increase growth. It makes sense that they would reduce incentives. How much money would it raise? And if there is some great spending projects that increase growth why aren't we already doing them?
> People don't make 50 million a year living in a hut in the middle of nowhere.
They also are aware of other countries and venues to receive that income. While a poor schmuck getting his $15 mil bonus from AIG won't have anywhere to hide - we got him, anybody who has a choice of where the payments are made will choose a more accommodating tax regime.
Exactly, and fairness keeps getting shifted along this scale. Here's an example that comes to mind when I think of taxation: let's say you have a country of 1 million people, and with total government expenses of $1 billion/year. The first taxation idea that comes to mind (and perhaps the fairest) is that every citizen pays exactly $1000 each in taxes. Now some people are going to scream "that's no fair, some people don't make that much per year, you want them to starve?" So then the next idea is "how about everyone pays 10% instead, so rich people pay more in raw dollars, but everyone still pays the same percentage?" The reply becomes "but that's still not right, rich people can afford to pay much more". Eventually, you wind up with a progressive tax that tops at around 90%, and nobody thinks this is fair (all in the name of fairness).