US Tax Brackets Spread For the Past 100 Years and the Concentration of Economic Decision Making

In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. Here is a history of the 'brackets spread.'

These are the nominal rates and do not account for tax shelters and deductions. This also does not include non-income taxes such as the federal gasoline tax.

Below this I also include a chart that shows the share of income obtained by the top 1%. I am not necessarily implying that low tax rates on the wealthy leads to a greater share of income for them, in a causal manner.

I think it is a correlation, that low tax rates for the wealthy are an artifact of their increased political power because of wealth obtained by other means, whether it be through monopolies, changes in public policy, cartels, financial fraud, technological change, and quite often corruption.

There should be little doubt from the last chart that the great turning point occurred during the Reagan era, but that it also obtained a 'second life' during the second term of Clinton and the beginning of the twin financial bubbles in tech and housing.

What was damaging in the Reagan philosophy was not so much any change in tax rates, but the promotion of the idea that the rule of unfettered markets was naturally superior to the rule of law, with beneficial effects for everyone. What this ignores is the tendency of unregulated markets to duopoly, monopoly, cartels, frauds and spectacular failures.

I hypothesize that not only does 'supply side economics' not work, but rather, a concentration of wealth and political power in the top one percent actually tends to drag down the overall well-being of the country in terms of robust growth and median standards of living.

This concentration of economic decision making tends to 'starve' the real economy by dampening aggregate demand, and distorting investment from the real to the artificial, particular, and ostentatious, in the manner of many third world oligarchies. It is similar to the concept that decisions made across the broadest number of market participants tend to be the most correct.

This is a somewhat counter-intuitive observation, that a ruling elite tends to 'get it wrong' as compared to a more broadly based decision model in a transparent information model, because their perspective tends more to distortion and group-think as compared to one that includes a reasonably educated and informed middle class. In other words, for all its flaws, democracy works when information flows.

Oligarchies never work, because benevolent dictatorships are mythical for many of the same reasons as the naturally efficient markets model.

Or as Lord Acton put it so succinctly some years ago:

"Where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that.

Lord Acton

There are two major models for recovering from such a situation: the Japanese model and the Swedish model, with a number of variations.

The Japanese model attempts to hold the financial structure largely intact, diverting huge amounts of policy action and public funds to supporting 'zombie banks' and interwoven corporate cartels. This led to a protracted period of stagnation.

The Swedish model is to nationalize, reorganize, reregulate and reform the financial sector into a more benign banking system. This has proven to be more successful in several instances, including Iceland more recently.

It will be interesting to see how the next ten years play out in North America and Europe.

h/t Barry Ritholtz

Source: WSJ
Looking Past Fiscal Cliff to Fixing Taxes
By Gerald F. Seib

Let's imagine you just landed from Mars and discovered that America's political system is in gridlock, and its economy is being held hostage. What, you would ask, is the giant problem creating all this trouble?

The big dispute, you would discover, is over whether the top individual marginal tax rate should be 35% (the rate established under George W. Bush) or 39.6% (the rate under Bill Clinton).

That is an oversimplification of the issues that are driving Washington toward the so-called fiscal cliff, of course. Still, that top rate is at the heart of the roaring economic debate.

Read the rest here.

Top 1% Share of the Wealth of the US During the same 100 Year Period

A Closer Look at the SP 500 Futures Daily Chart

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

The recent increases in cash and bullion in Sprott Physical Silver Bullion Trust have been added. The premium is rather modest.

Veteran's Day 2012 - We Can Stand on the Shoulders of Giants, If We But Remember Them

"If Athens shall appear great to you," said Pericles, "consider then that her glories were purchased by valiant men, and by men who learned their duty." That is the source of all greatness in all societies, and it is the key to progress in our time.

The second danger is that of expediency: of those who say that hopes and beliefs must bend before immediate necessities. Of course, if we must act effectively we must deal with the world as it is. We must get things done.

But if there was one thing that President Kennedy stood for that touched the most profound feeling of young people around the world, it was the belief that idealism, high aspirations, and deep convictions are not incompatible with the most practical and efficient of programs -- that there is no basic inconsistency between ideals and realistic possibilities, no separation between the deepest desires of heart and of mind and the rational application of human effort to human problems.

It is not realistic or hardheaded to solve problems and take action unguided by ultimate moral aims and values, although we all know some who claim that it is so. In my judgment, it is thoughtless folly. For it ignores the realities of human faith and of passion and of belief -- forces ultimately more powerful than all of the calculations of our economists or of our generals.

Of course to adhere to standards, to idealism, to vision in the face of immediate dangers takes great courage and takes self-confidence. But we also know that only those who dare to fail greatly, can ever achieve greatly.

It is this new idealism which is also, I believe, the common heritage of a generation which has learned that while efficiency can lead to the camps at Auschwitz, or the streets of Budapest, only the ideals of humanity and love can climb the hills of the Acropolis.

And a third danger is timidity. Few men are willing to brave the disapproval of their fellows, the censure of their colleagues, the wrath of their society. Moral courage is a rarer commodity than bravery in battle or great intelligence. Yet it is the one essential, vital quality for those who seek to change the world -- which yields most painfully to change. Aristotle tells us: "At the Olympic games it is not the finest or the strongest men who are crowned, but those who enter the lists." "So, too, in the life of the honorable and the good it is they who act rightly who win the prize."3 I believe that in this generation those with the courage to enter the conflict will find themselves with companions in every corner of the world.

For the fortunate amongst us, the fourth danger, my friends, is comfort, the temptation to follow the easy and familiar paths of personal ambition and financial success so grandly spread before those who have the privilege of an education. But that is not the road history has marked out for us.

There is a Chinese curse which says, "May he live in interesting times." Like it or not we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind. And everyone here will ultimately be judged, will ultimately judge himself, on the effort he has contributed to building a new world society and the extent to which his ideals and goals have shaped that effort.

So we part, I to my country and you to remain. We are, if a man of 40 can claim the privilege, fellow members of the world's largest younger generation. Each of us have our own work to do. I know at times you must feel very alone with your problems and with your difficulties. But I want to say how I -- impressed I am with the stand -- with what you stand for and for the effort that you are making; and I say this not just for myself, but men and women all over the world.

And I hope you will often take heart from the knowledge that you are joined with your fellow young people in every land, they struggling with their problems and you with yours, but all joined in a common purpose; that, like the young people of my own country and of every country that I have visited, you are all in many ways more closely united to the brothers of your time than to the older generations in any of these nations. You're determined to build a better future.

President Kennedy was speaking to the young people of America, but beyond them to young people everywhere, when he said: "the energy, the faith, the devotion which we bring to this endeavor will light our country and all who serve it; and the glow from that fire can truly light the world." And, he added, "With a good conscience our only sure reward, with history the final judge of our deeds, let us go forth to lead the land we love, asking His blessing and His help, but knowing that here on earth God's work must truly be our own."

Robert F. Kennedy, Day of Affirmation Address, Cape Town University, June 6, 1966

Gold Daily and Silver Weekly Charts - Zzzzzzz

The US bond market was closed today, and the stock markets posted their lowest volume of the year as the banks were closed for Veteran's Day, once upon a time known as Armistice Day.

There is quite a bit of noise about the 'fiscal cliff' and much of it is grossly overdone. But that is how one can make the people more malleable when it comes time to accept 'the grand bargain.'

Nothing of consequence occurred in the metals market, so why bother with comments?

It was nice outside, a good day for clearing fallen trees and rebuilding broken steps and mending fallen fences. The market will be open tomorrow.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Holiday Snoozer

Today was THE lowest volume full trading day of the year. The bond markets and the banks were closed for Veteran's Day.

Nothing of consequence happened. It was a good day to remember those who have gone before us, and paid for our freedom with their sacrifices.

Bill Black: Grand Bargain and Great Betrayal

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