Arthur B. Laffer - Taxes Have Consequences: An Income Tax History of the United States

A POST HILL PRESS BOOK

ISBN: 978-1-63758-564-1

ISBN (eBook): 978-1-63758-565-8

Taxes Have Consequences:

An Income Tax History of the United States

2022 by Arthur B. Laffer, Ph.D., Brian Domitrovic, Ph.D., and Jeanne Cairns Sinquefield, Ph.D.

All Rights Reserved

Cover design by Tiffani Shea

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author and publisher.

Post Hill Press

New York Nashville

posthillpress.com

Published in the United States of America

Table of Contents

W e thank those at Laffer Associates and the Laffer Center who have helped us in assembling the data for this book. These include Max Myers, Kenny Smith, Owen Curry, Richard Grant, Nick Drinkwater, Richard Neikirk, Gabby Jensen, and Randi Butler. From Hillsdale College, we thank Larry Arnn, Kyle Murnen, Juan Dvalos, Patrick Whalen, and also Ian Reid from Distant Moon Media. Jennifer Schubert-Akin of the Steamboat Institute and Raj Kannappan of Young Americas Foundation have supported our work on this book, as have Tony and Vicki Batman, Lee Beaman, Robert Bishop, Joel Citron, James Dondero, the Fickling family, Cynthia Fisher, Reza Jahangiri, Michael Joukowsky, Scott Minerd, Steven Shapiro, Rex Sinquefield, Tom Smith, and Richa rd Strong.

For review of our work, the efforts of Richard Salsman of Duke University (including for Brians book The Emergence of Arthur Laffer ), Jonathan J. Pincus of the University of Adelaide, and Michael G. Porter and John Tamny have been distinctly valuable. Our agent Michael Carlisle and his colleagues including Mike Mungiello at InkWell Management have again shepherded our work expertly, as have the professionals at Post H ill Press.

The sources upon which we relied for statistics and details of the tax law include, for tax rates, deductions, and exclusions: the Tax Foundation, Tax Policy Center, and United States Statutes at Large ; for population, employment, inflation, and economic output: databases at the Bureau of Economic Analysis and Bureau of Labor Statistics and the Federal Reserve Economic Data (FRED) warehouse; and for tax receipts and aggregate taxpayer information: the Statistics of Income of the Internal Revenue Service. Further governmental sources include the annual reports of the Secretary of the Treasury and federal budgets and various such reports from th e states.

Chapter 1:

Figure 1

Average Income of the Top 1% Detrended vs. Retention Rate of the Top 1%, 19132008

Figure 2

Top 1%, Top 50% (ex. Top 1%), and Bottom 50% Real Average Income, 19432017

Figure 3

Tax Revenues as a Share of GDP of the Top 1% of Income Earners vs. Bottom 95% of Income Earners vs. Highest Marginal Tax Rate, 19162013

Chapter 2:

Figure 1

Municipal Interest Payments as a Share of Total Reported Income of the Top 1 percent, 19292017

Chapter 3:

The La ffer Curve

Figure 1

Top 1 Percent of Income Reporters Average Tax Rate vs. Top Marginal Tax Rate, 19162017

Figure 2

Retention Rate of the Top 1 percent vs. Average Income of the Top 1 Percent Detrended, 19132018

Figure 3A

Tax Revenue from Top 1 Percent Income Earners vs. The Top Marginal Personal Income Tax Rate, 19432017

Figure 3B

Percent Change in Average Incomes and Average Tax RevenueTop 1 Percent

Figure 4

Average Real Tax Revenues per Top 1 Percent Detrended vs. Retention Rate, 19162017

Chapter 4:

Table 1

U.S. Tax Policy, Income and Tax Revenue for Top 1% of Incomes and the U.S. Economy, 19201929

Top Income Tax Rates in Four Countries, 19101940

Chapter 5:

Figure 1

The Stock Market and Total Trade Surrounding the 1930 Smoot-Hawley Tariff, 19251939

Table 1

U.S. Tax Policy, Income and Tax Revenue for Top 1 Percent of Incomes and the U.S. Economy, 19291944

Figure 2

Top 1% Net After-Tax Income vs. Highest-Bracket Tax Rate, 19291944

Figure 3A

Top 1% Share vs. the U.S. Employment Rate, 19171938

Figure 3B

The Smoot-Hawley Tariff, the Top Marginal Income Tax Rate and the Unemployment Rate, 19171938

Figure 3C

The Smoot-Hawley Tariff, the Top Tax Rate, Income Share of the Top 1 Percent

Chapter 6:

Figure 1

U.S. Unemployment Rate, 19281939

Chapter 7:

Figure 1

Real Federal, State, and Local Tax Revenue in 2018 Dollars, 19291950

Table 1

Real Federal, State, and Local Tax Revenues and GDP in 2018 Dollars, 19291940

Table 2

Real State and Local Tax Revenue, 19291940

Figure 2

Stacked Real State and Local Tax Revenues, 19291940

Table 3

Personal Income Taxes, Corporate Income Taxes, and Sales Taxes Enacted by States, 19291937

Table 3A

Prevalence of Corporate Income, Personal Income and Sales Taxes in 192 8 by State

Table 3B

Prevalence of Corporate Income, Personal Income, and Sales Taxes by State, 19291939

Table 3C

Corporate Income, Personal Income, and Sales Taxes by Number of States, 1929 vs. 19291939

Table 4

State and Local Property Ta x Revenues

Table 5

State and Local Other Ta x Revenues

Table 6

A Comparison of Taxation by Number of States, 1928 vs. 19291939

Chapter 8:

Figure 1

Real GDP and Real Nondefense GDP, 19291956

Table 1A

Government Finances, 19401945

Figure 2

Real Total GDP Per Man-Hour, Real Nondefense GDP Per Man-Hour and Real Nondefense GDP Per Capita, 19301948

Figure 3

U.S. Total Noninstitutional Population, Total Labor Force, Total Employment, and Total Annual Ho urs Worked

Table 1B

Government Finances, 19461950

Chapter 9:

Figure 1

Real GDP and Real Nondefense GDP, 19351950

C hapter 10:

Figure 1

Real GDP Ex-Defense Per Adult Detrended vs. Real GDP Per Adult Detrended, 19392020

Major Tax Rates in 1948-1949 and 19541963

C hapter 11:

Figure 1

Standard of Living: Real GDP Ex-Defense Spending Per Adult, 19392017

Figure 2

Dow Jones Industrial Average Index, 19601970

Figure 3

Percent Change in Taxes Paid and Percentage Point Change in Retention Rate by In come Class

C hapter 12: