Replacing income tax with tariffs
A story making the rounds right now is that Trump proposed eliminating the federal income tax and replacing it with tariffs. I don't think this will happen but it does make me reflect again on the idea of income taxes and the history of income taxes.
ChatGPT History:
Pre-Civil War Era: Early Taxation Efforts
1789-1800: The U.S. government primarily relied on tariffs and excise taxes for revenue. Alexander Hamilton, the first Secretary of the Treasury, introduced these as part of his financial plan.
1794: The Whiskey Rebellion was a direct response to the first excise tax on domestically produced distilled spirits, highlighting early resistance to federal taxation.
Civil War and Introduction of Income Tax
1861: To fund the Civil War, Congress passed the Revenue Act, introducing the first federal income tax at 3% on incomes over $800.
1862: The Revenue Act was revised to include a progressive tax structure, ranging from 3% to 5% on incomes above $600, and established the Office of the Commissioner of Internal Revenue.
1872: The income tax was repealed after the Civil War debts were settled, and federal revenue needs declined.
Gilded Age and Push for Tax Reform
1894: The Wilson-Gorman Tariff Act introduced a 2% tax on incomes over $4,000, which was aimed at addressing income inequality.
1895: The Supreme Court, in Pollock v. Farmers' Loan & Trust Co., declared the income tax unconstitutional as a direct tax not apportioned according to state populations.
16th Amendment and Permanent Income Tax
1909: Congress passed the 16th Amendment, allowing for the federal income tax without apportioning it among the states or basing it on Census data.
1913: The 16th Amendment was ratified, and Congress enacted a new income tax law with rates ranging from
1% to 7% on incomes above $3,000 for individuals and $4,000 for married couples.
World War I and Expansion
1917-1918: To fund World War I, the War Revenue Act significantly increased income tax rates, with top rates reaching 77% on incomes over $1 million. The number of taxpayers expanded significantly.
1920s: Post-war, tax rates were reduced during the Harding and Coolidge administrations, favoring economic growth.
Great Depression and New Deal
1930s: The economic collapse led to increased federal spending. The Revenue Act of 1932 raised tax rates again, and the New Deal expanded federal programs funded by taxes.
1935: The Social Security Act introduced a payroll tax to fund the new social insurance program.
World War II and the Modern Income Tax
1942: The Revenue Act of 1942 expanded the tax base, lowered exemptions, and introduced withholding from wages. The top tax rate rose to 94% on incomes over $200,000.
1943: The Current Tax Payment Act mandated withholding from wages, making income tax collection more efficient.
Post-War Era and Tax Reforms
1950s-1960s: High marginal tax rates persisted, but the economy grew. Tax policy focused on economic stability and funding the Cold War.
1964: The Revenue Act of 1964, influenced by President Kennedy, cut top marginal rates from 91% to 70%.
1981: The Economic Recovery Tax Act under President Reagan reduced the top rate from 70% to 50%.
Tax Reform Act of 1986
1986: The Tax Reform Act, a significant overhaul, simplified the tax code, reduced the number of tax brackets, and lowered the top rate to 28% while broadening the tax base.
1990s-2000s: Adjustments and Surpluses
1990: The Omnibus Budget Reconciliation Act raised the top rate to 31% and introduced a phased-out exemption for high earners.
1993: The Omnibus Budget Reconciliation Act of 1993 increased the top rate to 39.6% under President Clinton, contributing to budget surpluses.
2001 & 2003: The Economic Growth and Tax Relief Reconciliation Act and Jobs and Growth Tax Relief
Reconciliation Act under President George W. Bush cut rates across all brackets and introduced tax cuts.
Recent Developments
2010: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act extended the Bush-era tax cuts.
2013: The American Taxpayer Relief Act raised the top rate to 39.6% for incomes over $400,000.
2017: The Tax Cuts and Jobs Act under President Trump reduced the top rate to 37%, doubled the standard deduction, and capped the state and local tax (SALT) deduction at $10,000.
2021: The American Rescue Plan provided direct payments and extended tax credits, increasing federal spending to address the COVID-19 pandemic.
Current Trends and Debates
2024: Discussions continue over tax policy, including proposals for higher taxes on wealthy individuals and corporations, addressing inequality, and managing national debt.
No idea what u mean .
But fwiw monetary policy for inflation lagged around 18-24 months for the real economy .
Since u seem to be an easy right wing ideologue by the post I saw from you ? U will surely admire this reference ….
Economists Milton Friedman and Anna J. Schwartz studied long historical spans of monetary policy and the macroeconomy in the U.S. and U.K. and described the importance of long and variable lags.5 In his book A Program for Monetary Stability, Friedman writes, “There is much evidence that monetary changes have their effect only after a considerable lag and over a long period and that the lag is rather variable.”6
Friedman then quantifies such lags in monetary policy (although he characterizes this policy as operating through changes in the money supply, or “stock,” rather than through changes in interest rates) for the period he and Schwartz had studied, which covered the mid-19th to the mid-20th centuries.
On the lagged effects of monetary policy, Friedman wrote that, averaged over the 18 business cycles they studied, “peaks in the rate of change in the stock of money tend to precede peaks in general business by about 16 months and troughs in the rate of change in the stock of money to precede troughs in general business by about 12 months.” Moreover, he found a similar relationship applied to inflation. Today, we would associate what Friedman called “general business” with measures like employment level, consumption and real gross domestic product.
On the variability of lags, Friedman wrote that “the recorded lead has varied between 6 and 29 months at peaks and between 4 and 22 months at troughs.” For Friedman, the variability is the crux of the problem.
So yes money supply drop but for the real economy , its effect like inflation isn’t immediately for obvious reasons .
what do you mean "only 1k per month". 1k per month per 335M people is 4 trillion USD, approx double the total federal income tax revenue.
Deficits are inflationary and surpluses are deflationary, that's uncontroversial.
If you tax the rich for 1 trillion and give that to the poor that's very inflationary, because the rich weren't spending them, the poor would be.
If you cut taxes for 1 trillion and welfare for 1 trillion, that's deflationary, because welfare goes to the poors who have higher propen
I don’t think kids got 1k per month ….to equate 335 millions Americans .
Nah .
The creation of money isn’t just by the government.
Banks do as well .
My point was when the government gave household 1k per month or some similar amount , it’s kinda of like a reimbursement of taxes that people was suppose to pay .
So the equation is easy .
People don’t produce more but have more money into their hands will be inflationary .
When rich get the money , the financial assets goes up (that is where they spend their money).
When poor people got the money ,cpi inflation goes up and eventually asset prices goes up because, well people spend and the owners of assets (the rich) gets paid off eventually through more profitable financial assets (stocks).
U can try to mix the issue with deficit spending , where tax comes from and w.e else but the principle of supply and demand won’t change .
More taxes people have less money (deflationary).
Less tax people have more money (inflationary).
The economy as a whole (government +pricate sector) will determine if we are in a deflationary or inflationary period .
The economy is more then « if u cut the tax from X it’s equal 100% x result .,..
More variables are at play .
Assets prices don't contribute to inflation.
If house prices double but rent stays the same, that's 0 inflation
If you tax the rich for 1 trillion and give that to the poor that's very inflationary,
Assuming a balanced budget, no, that wouldn't be inflationary. Sure, you would see prices increase in stuff that poor people are buying as demand increased, but this would be a temporary flux. And this would be balanced out by lower prices in capital goods industries, which is presumably what the rich would have spent the money on. So you wouldn't see overall sustained increased prices, but you would see a short term increase in something like CPI probably. But as resources were bid towards consumer goods industries we'd except prices to go back to normal, assuming total production remained constant. And then once the redistributed wealth runs out i'd expect a crash of some sort.
Although how exactly you tax the rich for 1 trillion is important to understanding the situation as well. Are we talking a wealth tax here or what? Because that would presumably cause a lot of rich people to not enter your country and/or leave it as well.
Assuming a balanced budget, no, that wouldn't be inflationary. Sure, you would see prices increase in stuff that poor people are buying as demand increased, but this would be a temporary flux. And this would be balanced out by lower prices in capital goods industries, which is presumably what the rich would have spent the money on. So you wouldn't see overall sustained increased prices, but you would see a short term increase in something like CPI probably. But as resources were bid towards cons
Assuming a balanced budget yes, it would be.
It's inflation even if it is temporary.
The rich simply didn't spend that money, it's in their bank accounts. From there it's sometimes loaned to agents which will use it to exercise demand on the economy but with a time lag, and bank lending isn't restrained by available funds anyway in a fractionary reserve banking system.
Using more technical parlance if you want, the velocity of money gets higher if you put it in the hands of the poors.
Inflation doesn't depend only on money quantity
Assets prices don't contribute to inflation.
If house prices double but rent stays the same, that's 0 inflation
If u think house prices doubling in 10 years should not be count as inflation I don’t know what to tell you shrug .
FWIW
https://www.brookings.edu/articles/how-d...
Over time, changes in house prices do predict changes in rents—although the relationship is far from one-to-one and occurs with long lags. Xiaoqing Zhou and Jim Dolmas of the Dallas Fed find that the correlation between house price growth and OER inflation peaks at about 0.75 after 16 months.
We all know the cpi have big problems (for many reasons) and a bit fix by the government and some items and interpretation do not make much sense (like housing cost being replace by rent) but we still use it as a general economical variable nonetheless because there isn’t anything much better .
But to claim house prices , stocks, gold do not suffer inflation just because some government decided not to included them in their cpi calculation , and so inflation do not exist , it’s pretty ridiculous .
