On my “real” facebook page, I posted a link to Laffer’s article arguing in favor of lower taxes on the rich. A liberal friend posted a reply that pointed out that, during the 1950s, which was a time of tremendous US economic strength, the top bracket was taxed at a marginal rate of up to 90%. By contrast, the top bracket today is taxed at something approximating half that, but the economy is weak. From that he concludes that Laffer is dead wrong.
Is my friend right? I believe as a matter of principle that money should be in the hands of the people and not the government, and I believe as a matter of principle that government redistribution of wealth is wrong, but I am incapable of explaining in economic terms why high taxes worked in the 1950s — or, at least, didn’t seem to have stifled the economy — while the lower tax rate now doesn’t seem to have stemmed the recession. One of my more conservative friends suggested that the answer might lie in the fact that the post-war US economy, unlike the rest of the world’s, wasn’t lying in ruins, which certainly helped. Is that it, or is there more to the story?
I trust that many of you, more sophisticated about economics and taxes than I, can either set me right — or, possibly, confess that my friend has a point.