Sorry, no good references
The note about income tax and supply side economics is something that I thought of after reading America, Who Pays the Taxes?. I don't know of anyone who has analyzed it in depth, and therefore all we have is a correlation.
However I don't need anything more for my basic point. I am not arguing for any economic theory, just against one. Now in the normal course of things I could look at a theory that says we give the ruling class all of the goodies that they want and the rest of us will wind up better off, and dismiss it as a moronic piece of rationalization. Unfortunately supply-side economics has aquired (despite a notable lack of experimental evidence) some degree of accepted credibility because it has been so often repeated as political gospel.
Therefore what I need is a simple memorable fact that runs exactly opposite to everything that supply side economics predicts. And I happen to have it.
As for whether the economic model from the 50's is good for the middle class, well I have no proof, merely (as I stated up front) opinion. And my opinion is that a graded income tax with extremely high taxes on the rich (that cannot easily be ducked) and lower average taxes is good overall.
Why?
Very simple. As current studies have indicated, there is no detectable correlation between CEO compensation and how well they run their companies. With low personal tax rates the CEO has every incentive to reward themselves regardless of the job done. High personal tax rates go a long way towards providing an effective disincentive. Now perhaps some don't like the result, but one effect is that CEOs like Thomas Watson at IBM get encouraged to put energy into building their companies into personal empires rather than just cashing out. And I think that is good for the middle class. (Of course far more than just that happened through the 50's.)
An incidental note. I said the main tax exemption, but I didn't explain how this exemption (called for historical reasons "the flying nun" exemption) worked in practice. You get to pay no taxes, if you donate your income or more to charity. But how can that be better than just taking your lumps and pay less than your income in taxes?
Quite easily. You don't pay capital gains taxes on charitable gifts. Make an investment. Wait a few years so it is worth more. Donate it to a charity (museum, foundation, etc) and take the full current value as a tax writeoff.
This works particularly well if grandpa had a convenient habit like collecting Monet paintings. Speaking of which, museums suddenly flush with unexpected money went into purchasing art in a big way and taking it out of circulation. This ongoing erosion of supply made art a very reliable investment, leading people to buy it for that reason and...
Cheers,
Ben
