History Repeats

October 8, 2009

              And it’s not a pretty picture–not pretty at all. What was that adage about those who forget the failed policies recorded by history are doomed to repeat them…or something like that?

             So saith Arthur Laffer–a guy who probably knows a little about history, not to mention economics. In a recent Wall Street Journal essay, Laffer cites more than a few facts about U.S. economic policies in the era of the great depression, noting ruefully that if America doesn’t wake up and stop some of the moronic policies now coming down the pike via the Democrats in Washington, she had better buckle down for yet another very rocky ride.

            Laffer notes that starting in about 1932, in response to the big economic problems of the preceding few years, the powers that be figured a smart thing to do would be to raise the lowest personal income tax rate to 4% (from less than one half of one percent). And if that wasn’t enough, government fiscal geniuses decided to raise the highest rate from 25% to 63%! Then came Roosevelt, who somehow came to the conclusion that the estate tax rate was just a bit low, raising it to 60% from 45%, and to 70% the next year, 1935.

          One tax increase deserves another, doesn’t it? In 1936, the highest personal income tax rate shot up to 79% from the previous lofty 63% clip. Notes Laffer, “The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I’d give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s.”

           And if the tax policies weren’t bad enough in the 30s, Laffer goes on to point out that actions in the 1933-1934 time frame led to devaluation of the dollar, causing the money supply to grow by over 60% from April, 1933 to March, 1937. “The consumer price index from early 1933 through mid-1937 rose by about 15% in spite of double-digit unemployment,” notes Laffer. “The lessons here are pretty straightforward,” he says. “Inflation can and did occur during a depression, and that inflation was strictly a monetary phenomenon.”

What a pleasant thought. Are you listening, Obama?

          And here’s another brainless stratagem being pushed by Democrats and big labor: a “small tax” (something like one tenth of one percent) on every stock transaction. “It would have two benefits,” according to Thea Lee, policy director of the AFL-CIO. “Raise a lot of revenue and discourage speculative financial activity.” She thinks such a scheme could raise between $50 and $100 billion a year which, reports TheHill.Com “could be used to pay for infrastructure projects and other spending priorities.”

          Heard any similar-sounding drivel from the White House and Congress lately?

         CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.

          Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He is also a contributor to the recently published twelfth edition of Tax Savvy for Small Business, published by Nolo. He can be reached at 831-7288, and welcomes comments below.

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