Comment 32578

By A Smith (anonymous) | Posted August 05, 2009 at 06:53:00

Ryan >> Speaking of simple correlations, the period of time between 1946 and 1979 was ALSO the period of time when marginal tax rates were the highest. So much for the lower tax rates == stronger growth mantra.

Top U.S.Income Tax rates 1946-1957 - 91%
Tax revenue as % of GDP 1946-57 - 23%
Non Military Spending as % of GDP 1946-57 - 12%

Top Tax rates 2009 (Highest combined rate, California) - 45.3%
Tax revenue as % of GDP 2008 (pre recession) - 29%
Non Military Spending as % of GDP - 29.9%

As you can see, even though tax rates were 91% after WWII, tax revenues to the government were limited to 23% of the economy. Furthermore, non military spending, on things like health, education and welfare, was less than half the level it is today. As the welfare state has grown and private sector spending has been crowded out, the overall growth rate of the economy has slowed down.

As for property tax rates, I don't think you would see the inverse relationship between lower tax rates and higher revenue as a share of the economy. This has been the result of fewer tax avoidance schemes, which are harder to utilize with real estate.

Ryan >> Mumbai (Bombay) is a powerhouse of economic growth. The absolute wealth per capita is still quite small by Western standards, but the rate of wealth generation is quite impressive.

If population scale and density are the keys to wealth creation, why are Canada (45k), Australia (47k), Iceland (55k) and Ireland (61k) vastly richer than India (1k)? Just for comparison, Mumbai has 14 million residents and has a population density of 29,875/km2. Metro Dublin has 1.6 million people, and has a population density of 238/km2.

Dublin has far fewer people, with far less density and yet is 60x wealthier than Mumbai.

The true creator of wealth is a strong and open economy that is controlled by the private sector. It's the reason why the "government planned" Indian economy of the post WWII years was a disaster and it also best explains India's recent success. As more economic decisions have come to be made from the "for profit" areas of the economy, lo and behold, India has produced more profits.

Wealth comes from profits, profits come from the private sector. If you want a wealthy city, you need to let the private sector keep most of the money and make most of the decisions, if not all. Otherwise, you have politicians making spending decisions based not on creating wealth (profits), but on what suits them politically. This experiment has played itself out in many nations and the result is always the same, poverty and a very unhappy population.

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