Can Income Tax Rate Hikes Close the Deficit? (interesting article)

[Gokul43201]

<snip>
1901-1915 (15 years) ___________________________ 630
1916-1940 (25 years) __________________________ 4,015
...
1990_____________________________________1,031,972
2000_____________________________________2,025,198

These numbers are not adjusted for inflation, but since inflation was only a big factor after we went off the gold standard, and clearly cannot account but for a fraction of the growth seen above, these numbers are still a good indication of the stark difference between the early history of the U.S. and the last century.

The calculator I found here says that the inflation from the early 1914 to now is over 2,000%. Let's call the revenue for 1914 a round $1000 (millions assumed throughout). Scaled for inflation, that's about $200,000. That's for a 1914 population of about 100 mill, compared to today's pop of about 300. Also, the workforce participation has increased significantly, as a fraction of population, due to the addition of women to the labor force. These two effects contribute a multiplier of about 4. That makes the effective 1914 revenue about $800,000, which is about 2.5 times smaller than today's value.

If I haven't made any big mistakes, that is clearly smaller than today's value, and assuming we didn't transition across a Laffer optimum, implies that effective tax rates were similarly smaller than today's. I don't think I'd characterize it as a 'stark difference' though.

 

[Al68]

The calculator I found here says that the inflation from the early 1914 to now is over 2,000%. Let's call the revenue for 1914 a round $1000 (millions assumed throughout). Scaled for inflation, that's about $200,000. That's for a 1914 population of about 100 mill, compared to today's pop of about 300. Also, the workforce participation has increased significantly, as a fraction of population, due to the addition of women to the labor force. These two effects contribute a multiplier of about 4. That makes the effective 1914 revenue about $800,000, which is about 2.5 times smaller than today's value.

If I haven't made any big mistakes, that is clearly smaller than today's value, and assuming we didn't transition across a Laffer optimum, implies that effective tax rates were similarly smaller than today's. I don't think I'd characterize it as a 'stark difference' though.

That all sounds about right, and thanks for the legwork. Government (and tax rates) certainly has grown considerably since 1914. But the "stark" difference I was referring to is between the first 125 years (roughly) and the last century. It was roughly those first 125 years that the U.S. went from nothing to "the greatest nation in history", and after that that other nations started catching up.

A quick glance at those numbers indicates a very stark difference indeed, especially considering that inflation was a much, much smaller factor. here shows that from 1800 to 1900, the total inflation was only about 100% instead of over 2000% for the last hundred years.

And "stark" is a huge understatement if we combine those periods, and consider the growth of government (and taxes) since the beginning.