{"id":68217,"date":"2016-10-01T08:00:37","date_gmt":"2016-10-01T12:00:37","guid":{"rendered":"http:\/\/valorguardians.com\/blog\/?p=68217"},"modified":"2016-10-02T14:54:18","modified_gmt":"2016-10-02T18:54:18","slug":"common-leftist-economic-claims-part-ii-refuting-the-supply-side-canard","status":"publish","type":"post","link":"https:\/\/www.azuse.cloud\/?p=68217","title":{"rendered":"Common Leftist Economic Claims, Part II: Refuting the \u201cSupply Side\u201d Canard"},"content":{"rendered":"

To continue from yesterday\u2019s article:\u00a0 in a previous article here at TAH, one of our frequent commenters made this unsupported claim:<\/p>\n

Additionally, inflation adjusted income is negatively correlated with tax cuts for the the top tax brackets.<\/p><\/blockquote>\n

Presumably, the individual meant “increasing<\/em> inflation adjusted income”.\u00a0\u00a0 I’ll make that assumption, because otherwise the statement doesn’t make much sense.<\/p>\n

The same commenter also posed this question.<\/p>\n

When in the history of human society has wealth ever flowed DOWN in any meaningful way?<\/p><\/blockquote>\n

Essentially, these two items are a restatement of the old Leftist claim that \u201csupply side economics doesn\u2019t work\u201d.<\/p>\n

Well, let\u2019s look at that.\u00a0\u00a0 Luckily, data shedding light on the answer to that question is readily available.\u00a0 That is, it\u2019s readily available if you (1) actually know what to look for, (2) are willing to do some simple calculations using common software, and (3) are willing to believe your own eyes.<\/p>\n

And unlike our commenter above, I\u2019ll provide a graphic that actually is<\/span> relevant to the matter under discussion.\u00a0 (smile)<\/p>\n

Data<\/u>.<\/p>\n

The US Census Bureau collects tons of data.\u00a0 One of the items they collect \u2013 and regularly publish \u2013 is data concerning US median household real<\/u> (e.g., inflation-adjusted) income.<\/p>\n

Historical data regarding the top Federal income tax rate is also available from numerous sources.\u00a0 I located one that contained data for the same period.<\/p>\n

Tables can be hard to interpret.\u00a0 Most people have a much easier time grasping what\u2019s going on if the numbers can be presented meaningfully<\/em> in graphical format.\u00a0 Luckily, common software (spreadsheets) today provide an easy way to do exactly that.<\/p>\n

So, I did two things.\u00a0 I obtained the pertinent data for each item (top income tax rate and median US real household income) for the period 1967-2015.\u00a0 I then used common spreadsheet software to compare this data graphically.\u00a0 Let’s take a look at what the data shows.<\/p>\n

Here\u2019s a graph that plots US median household income, in real terms (e.g., after having been adjusted for inflation using the Bureau of Labor Statistics’ CPI-U-RS<\/em><\/a> from 1977 on and the Census Bureau’s derived CPI-U-RS<\/em><\/a> for the period 1967-1976) and the top marginal individual Federal income tax rate for the period 1967-2015.\u00a0 Data sources are indicated at the end of this article.<\/p>\n

 <\/p>\n

\"\"<\/center> <\/p>\n

A larger version of the same image may be viewed here<\/em><\/a>.<\/p>\n

Important Concepts <\/u>.<\/p>\n

I\u2019d like to emphasize a three key points before continuing.<\/p>\n

First<\/strong>, the chart above shows income in REAL terms – that is, after having been adjusted for inflation using the Census Bureau\u2019s version of CPI-U-RS.\u00a0 Thus figures from different years can indeed be validly compared<\/u>.<\/p>\n

Second<\/strong>, the chart used median<\/em> household income \u2013 not average (mean).\u00a0 The median is defined as the midpoint of a given data set; half of the values in the data set\u00a0 fall above that value, and half fall below.\u00a0 It is NOT the average (mean).\u00a0 Its use is significant because the mean of a data set can be grossly distorted by a small number of \u201coutlier\u201d data points at the extreme end of the spectrum.<\/p>\n

Don\u2019t believe me?\u00a0 Let’s look at the mean (average) and median of a data set consisting of a large set of data with two huge outliers. Specifically, let’s look at a data set consisting of a thousand and one values, the first 999 being the integers from 1 to 999\u00a0 \u2013 and the other two each equal to ten million.\u00a0 For this example data set, the mean is 20,479.02; in contrast, the median is 501.\u00a0 Therefore, for that data set the median is far more generally descriptive of the data than the mean, which has been grossly skewed by two outliers.<\/p>\n

Income data is subject to similar skewing; one person who makes a killing in the market (e.g., several $M) or in real estate speculation in a given year can skew an entire town’s average (mean) household income for that year, but won’t markedly affect the median.\u00a0 Thus, using the median vice the mean is a better choice.<\/p>\n

Third<\/strong>: an increasing median over time for a data set indicates that values of the individual data elements are in general getting larger<\/em>.\u00a0 (Remember:\u00a0 median means half are larger and half are smaller.)\u00a0 A rising median real<\/span> income is thus indicative of a general increase in purchasing power across the board<\/em>. – or a situation where virtually everyone<\/span> is getting better off, economically speaking.<\/p>\n

Observations.<\/u><\/p>\n

Inspecting the above chart yields some interesting results.<\/p>\n

    \n
  1. From 1967 to 1980, the top US tax rate was 70% or higher (in 1981, it was just below 70% \u2013 69.12%, to be precise.) That\u2019s not quite the absurd post-World War II confiscatory top tax rates of 90+% in effect until the early 1960s, but it’s still very high.\u00a0 During this period, using the \u201ceyeball\u201d method the US median household income appears to have oscillated around a trend line of around (in real terms) $48,500.\u00a0 If there was any trend at all for an increase with time, it was barely<\/em> increasing.\u00a0 It may have been decreasing slowly instead.<\/li>\n
  2. In 1982, the top tax rate dropped to 50%. A year later, the median US real household income began rising.\u00a0 It remained generally rising, with the exception of the Gulf Crisis period and its immediate aftermath (1990-1993), until 1999.<\/li>\n
  3. The US tax rate dropped again in 1987, to below 40% (38.5%). It has remained below 40% ever since.<\/li>\n
  4. The temporary downturn in median US real household income from 1990-1993 coincides with both the buildup to and the Gulf War itself, along with two rises in the maximum US income tax rate. The first increase was by over 10%, to 31%, in 1991; the second was by over 27%, to 39.6%, in 1993.<\/li>\n
  5. The end of the rise in median US real household income coincides with the \u201cdot.com bubble burst\u201d that occurred at about that time. This was exacerbated by the events of 9\/11 and the war years following.<\/li>\n
  6. In spite of the \u201cdot.com bubble burst\u201d, 9\/11, and protracted war in Southwest and Central Asia, in 2004 median US real household income began to rise again. This occurred shortly after a reduction of approximately 11.6% in the top US income tax rate over the period 2001-2003 – from 39.6% to 35%.<\/li>\n
  7. The collapse in 2007 of the US real estate \u201cbubble\u201d, attributable IMO largely to shortsighted and unsound lending policies mandated by the Clintoon administration, and the resulting follow-on Wall Street financial crisis of 2008 ended the short-term rise in median US real household income. The median US household real income has yet to recover to 2007 levels.<\/li>\n
  8. The top US income tax rate was raised again in 2013, by roughly 13%, to 39.6%. Leading economic indicators indicate that US economic growth over the 12-month period ending in August 2016 appears to have been a paltry 1.1%<\/em><\/a> – well under that generally accepted as required to sustain a rising standard of living.\u00a0 That’s troubling.<\/li>\n
  9. At worst, the US median real household income appears to have reached a new stable level, albeit at a significantly higher stable level than before.\u00a0 At best, the end of the current recession will return the US to continued real median household growth.<\/li>\n<\/ol>\n

    Analysis<\/u>.<\/p>\n

    In reviewing the above the following becomes quite evident.<\/p>\n