ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Tax Myth Number One

Updated on February 7, 2018

The First Of Many?

In contemplating a title for this hub, which is about one of the pervasive myths regarding the United States income tax, I eventually recognized that there are so many myths and misconceptions regarding taxes that I would probably need to write a hundred hubs to cover them comprehensively. So, in anticipation of such future endeavors, I begin here with "number one," the first of what could prove to be many tax-related discussions.

It's an article of faith among some politicians (and far too often repeated in the mainstream media) that cutting the income tax rate for the richest Americans creates jobs. After hearing so many times about a positive historical correlation between taxes and unemployment, I decided to research the matter for myself. Understanding that the current debate regards tax rates that are ALREADY in place, and in light of the current high rate of high unemployment, I approached my investigation with a highly skeptical eye. Still, I half expected to see some historical synchronization.

There was, indeed, a correlation between the highest income tax rates and unemployment, but it proved to be NEGATIVE, not positive! In other words, the historical data suggests that when the rich pay higher marginal tax rates, unemployment tends to go DOWN, not up!

Do they really need MORE money?
Do they really need MORE money?

Looking At The Numbers

For my research I relied upon historical data from the Bureau of Labor Statistics and the Tax Policy Center. Specifically, I found the top marginal income tax rates (that is, the base rate, not adjusted for exemptions and loopholes) from 1948 to 2009 and compared them with the annual unemployment rates for those same years.

What I discovered was that, except for a brief six-year period in the late 1980s to early 1990s when the two rates mostly moved up and down together, the unemployment rate and highest tax rate usually moved in OPPOSITE directions. When the tax rate remained steady, the unemployment rates usually fluctuated, with two notable exceptions:

The first was from 1982 to 1986 (50%), where unemployment declined from 9.7% to 7.0%. The second was from 1993 to 2000 (39.6%), where unemployment declined from 6.9% to 4.0%. The first occured after the tax rate has been lowered (by less than 1%), the second after it had been raised (by more than 8%). It's impossible to draw a direct correlation from one without negating it with the example of the other.

In the data offered below, the first number is the year, the second is the top marginal income tax rate and the third is the annual unemployment rate.

First, from 1948 to 1952, the top tax rate grew from 82.12% to 92%, yet from 1949 to 1953 the unemployment rate declined from 5.9% to 2.9%:

1948_____82.13_____3.8
1949_____82.13_____5.9
1950_____91.00_____5.3
1951_____91.00_____3.3
1952_____92.00_____3.0
1953_____92.00_____2.9

Just another statistic
Just another statistic

The next year, the upper tax rate dropped a percentage point, and the unemployment rate nearly doubled, to 5.5%. Then, as the tax rate remained steady for ten years, the unemployment rate went up and down, ranging from 4.1% to 6.7%:

1954_____91.00_____5.5
1955_____91.00_____4.4
1956_____91.00_____4.1
1957_____91.00_____4.3
1958_____91.00_____6.8
1959_____91.00_____5.5
1960_____91.00_____5.5
1961_____91.00_____6.7
1962_____91.00_____5.5
1963_____91.00_____5.7

Then, in 1964 the top tax rate dropped dramatically, from 91% to 77%. Yet, the unemployment rate dipped only one half of a percent, from 5.7% to 5.2%:

1964_____77.00_____5.2

For the next 15 years, with the exception of a brief three year bubble, the top tax rate remained at 70%, while the unemployment rate fluctuated up and down.  Of the entire 15 years, the middle of that bubble, 1969, recorded the highest tax rate at 77%.  It also recorded the lowest rate of unemployment at 3.5%:

1965_____70.00_____4.5
1966_____70.00_____3.8
1967_____70.00_____3.8
1968_____75.25_____3.6
1969_____77.00_____3.5
1970_____71.75_____4.9
1971_____70.00_____5.9
1972_____70.00_____5.6
1973_____70.00_____4.9
1974_____70.00_____5.6
1975_____70.00_____8.5
1976_____70.00_____7.7
1977_____70.00_____7.1
1978_____70.00_____6.1
1979_____70.00_____5.8
1980_____70.00_____7.1

Next, in 1982 the tax rates began to drop dramatically, from 69.13% to 50%, and the unemployment rate immediately peaked to 9.7%, then steadily dropped as the tax rate remained steady:

1981_____69.13_____7.6
1982_____50.00_____9.7
1983_____50.00_____9.6
1984_____50.00_____7.5
1985_____50.00_____7.2
1986_____50.00_____7.0

The only time period when unemployment rates and the upper tax rates were largely in synch was from 1987 until 1992, where both fell, then rose together:

1987_____38.50_____6.2
1988_____28.00_____5.5
1989_____28.00_____5.3
1990_____31.00_____5.6
1991_____31.00_____6.8
1992_____31.00_____7.5

In 1993 the upper tax rate again rose to 39.6%, and the unemployment rate immediately dropped to 6.9%. Then, as the tax rate remained steady until 2000, the unemployment rate declined steadily to a low of 4.0%:

1993_____39.60_____6.9
1994_____39.60_____6.1
1995_____39.60_____5.6
1996_____39.60_____5.4
1997_____39.60_____4.9
1998_____39.60_____4.5
1999_____39.60_____4.2
2000_____39.60_____4.0

The next year, the tax rate dropped a percentage point to 38.6%. The unemployment rate rose to 4.7%, continuing to rise to a peak of 6% in 2003:

2001_____38.60_____4.7
2002_____38.60_____5.8

Since then the top tax rate has remained at 35% and, after dipping at 4.6% in 2006 the unemployment rate has once again climbed, to 9.3% in 2009.

2003_____35.00_____6.0
2004_____35.00_____5.5
2005_____35.00_____5.1
2006_____35.00_____4.6
2007_____35.00_____4.6
2008_____35.00_____5.8
2009_____35.00_____9.3

In the end, I must state for the record that I'm not claiming a direct cause-and-affect historical correlation between the top tax rates and unemployment rates. I fully realize there were myriad other economic factors affecting the rate of employment. Still, the next time someone tries to tell you that lower income taxes on the rich mean lower unemployment, you can demonstrate to them that the historical data actually suggests the opposite!

 

Comments

Submit a Comment

  • Paladin_ profile imageAUTHOR

    Paladin_ 

    23 months ago from Michigan, USA

    This comment is regarding the troll who recently left an anonymous comment on this hub, which has now been deleted.

    I've recently changed the comments sections of my hubs to disallow anonymous comments (thanks to previous problems with spamming), and he apparently went through all twenty-five of them until he found the ONE that wasn't yet updated. That's one desperate troll!

    Sadly for this vile, pathetic little person, his snarky comments have been forever deleted, and no one will ever read them. Of course, he'll read THESE comments, as trolls can't resist seeing what responses they evoke. He simply won't be able to help himself. It's what trolls live for.

    But, then, since he refuses to create a HubPages account (which would subject him to the same rules as everyone else here), he won't be able to reply, which -- for a troll -- is a fate worse than death. I guess it sucks to be him. ;-)

  • Paladin_ profile imageAUTHOR

    Paladin_ 

    6 years ago from Michigan, USA

    Thank you, Sooner and gconey!

  • profile image

    Sooner28 

    6 years ago

    This is a very good hub! I never thought it made much sense upon reflection. Instead of paying good teachers to educate children, Warren Buffet needs a tax cut on his billions; and somehow, this will become some sort of magic elixir that will cure all problems in the world.

  • gconeyhiden profile image

    gconeyhiden 

    6 years ago from Brooklyn, N.Y.C. U.S.A

    I like your knight's helmet and the research analysis.

  • Xenonlit profile image

    Xenonlit 

    6 years ago

    This is a good reference. But isn't it amazing that you get an ad for "Christian debt relief?" I'm a Christian, so am I supposed to pray my way out of it? No..I know that I have to pay my bills!

  • Paladin_ profile imageAUTHOR

    Paladin_ 

    7 years ago from Michigan, USA

    Thanks, HSchneider! I'm also disgusted by Obama's tax cut deal. However, I'm not surprised. He's made it clear, despite all his talk of "changing" Washington, that he's just another establishment politician.

    Even worse, he's proven fairly inept when it comes to the art of political bargaining. To borrow my man Cenk Uygur's analogy, he's like a chess player who opens the match by giving the opponent his queen, then crows when he captures a pawn.

  • profile image

    Howard Schneider 

    7 years ago from Parsippany, New Jersey

    Great Hub and very accurate. I am disgusted the Obama Administration capitulated on the Bush tax cuts. I would have stuck to my guns on the $250,000 and over and let them expire. I would have let all the estate tax cuts expire also. The Republicans are phonies on the deficit. They have now proven it.

  • Paladin_ profile imageAUTHOR

    Paladin_ 

    7 years ago from Michigan, USA

    Thank you, jdavis88! When I began the research, I mostly expected mixed results. Of course, as I stated in the hub, the numbers don't prove cause and affect, but the correlations they suggest still surprised me!

  • jdavis88 profile image

    Joseph Davis 

    7 years ago from Florida

    Great research! good job!

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)