My Comments: OK, if you can’t stand reading about economics, then skip this blog post.

On the other hand, if you have concerns about the economy and whether your vote in the upcoming election will have any influence on the amount of money you have to spend ten years from now, then you might want to read this article.

It comes courtesy of Nicholas Paleveda MBA J.D. LL.M who practices in Bellingham, WA

Higher marginal rates actually helping the economy is a counter-intuitive thought. Generally, it is the thinking of the hoi palloi that lower marginal tax rates lead to prosperity; however the historical data indicates otherwise. This study takes us from1951, where the highest marginal tax rates were 92 percent, until the present, where the highest marginal tax rates are 35 percent.

The study compares the returns of the S&P 500 and its relationship to the highest marginal tax rates during that time period. An abecedarian concept of taxation is to focus on the highest marginal tax rates. This study compares the highest marginal tax rates with the growth in the economy as measured by the S&P 500.

In reviewing the data, the optimal tax rates to keep the economy moving forward falls between 39.6 percent and 50 percent. The call for lower marginal rates or the benighted tea party movement appears only to hurt the people who are supporting the movement. The pledge not to raise taxes appears also as a pledge not to help the economy.

1951-1963
Tax rates 91 percent to 92 percent
Growth 11.8 percent +-

During this time period, the marginal tax rates were a staggering 91 percent to 92 percent. If high tax rates could only hurt the economy, this period cannot be explained, as the S&P 500 grew on an average of 11.92 percent (mean growth), 11.8 percent (median growth). The double-digit growth cannot be explained along with the higher marginal tax rates and especially what happened next.

1964-1970
Tax rates 70 percent to 77 percent
Growth 3.6 percent +-

The first paradox: Marginal tax rates fall and the economy slows down. During this time period, tax rates actually fell from between 91 percent and 92 percent to between 70 percent and 77 percent. At the same time, the economy grew at 3.6 percent (mean growth) or 7.7 percent (median growth). In any event, with lower marginal tax rates, the economy actually did not do as well as when tax rates were between 91 percent and 92 percent.

1971-1981
Tax rates 70 percent
Growth 4.35 percent

The second paradox: Tax rates continue to decrease and the economy still is sluggish. During this time period, marginal tax rates were 70 percent and the economy continued at an anemic pace of 4.35 percent (mean growth), 10.8 percent (median growth). The tax rates remained high, but the economy did not grow rapidly for a decade.