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Why did the high tax rates, along with a lack of loopholes meaning less tax avoidance, create such an environment for GDP growth?
Oh, there were plenty of loopholes for the wealthy to use. It was common to have a relatively smaller executive salary to avoid the higher tax rates while writing off executive perks as business expenses:
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But in fact, the tax rates of the 1950's didn't necessarily reduce CEO consumption; it just reduced their reported taxable income . The high income tax rates in the 1950's were paired with a corporate tax system that allowed companies much more generous deductions for things like business lunches, business-travel-with-spouse, and so forth. Right now you pay Rick Wagoner a squillion dollars, and he entertains important people on his own dime; in 1955, you paid him less, but he expensed all his entertaining to the company. Descriptions of 1960's expense account procedures for even entry-level management are enough to make this journalist rather faint with envy.
This difference also explains some of the difference between American executives and those in Europe; among my American friends in international finance, European expense accounts are the subject of something close to awe. This is not to say that the tax code is the only explanation; almost no phenomenon has a single cause, and I have no doubt that there has been an actual, as well as an apparent, increase in CEO compensation. But I greatly doubt that it is anywhere near as large as the taxable income figures seem to make out.
Leaving founder-owners like Larry Ellison and Bill Gates aside, it's hard for me to detect massive lifestyle differences between F. Ross Johnson (the CEO of RJR Nabisco described in Barbarians at the Gates) and the current CEO of Kraft Foods (which bought Nabisco). The difference is, the current CEO gets his in cash and stock.
http://www.economist.com/blogs...ich_really_different quote:
The only guess has been the influence of WWII. The post WWII argument means that it took 20+ years for the rest of the world to get over the effects of war.
It takes time to first rebuild the roads, railroads, communications, and other infrastructure after the major rubble removal. After that factories can be built after capital is found (Enter yankee capitalists). A work force must be trained, sources of raw materials must be found, product lines must be developed, customers must be found, etc.. It all takes years to go from complete ruin to a thriving economy. Also one should remember that aid like the Marshall plan was intended to be as much a gift to American industries as well as an aid to the destroyed economies of the world:
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The Marshall Plan aid was mostly used for the purchase of goods from the United States. The European nations had all but exhausted their foreign exchange reserves during the war, and the Marshall Plan aid represented almost their sole means of importing goods from abroad. At the start of the plan these imports were mainly much-needed staples such as food and fuel, but later the purchases turned towards reconstruction needs as was originally intended. In the latter years, under pressure from the United States Congress and with the outbreak of the Korean War, an increasing amount of the aid was spent on rebuilding the militaries of Western Europe. Of the some $13 billion allotted by mid-1951, $3.4 billion had been spent on imports of raw materials and semi-manufactured products; $3.2 billion on food, feed, and fertilizer; $1.9 billion on machines, vehicles, and equipment; and $1.6 billion on fuel.[69]
http://flaggedrevs.labs.wikime...g/wiki/Marshall_Plan Now let me ask a question. It can be shown that confiscating the
entire income of millionaires is not enough to close the budget shortfall. So what is your plan to balance the budget? Do you think that we should disembowel the rich like the goose that lays the golden eggs? Do we hold the rich hostage until an alchemist or the good-fairy rides in on an unicorn to transmute lead into gold?