Comment 26499

By A Smith (anonymous) | Posted September 10, 2008 at 17:02:14

Ryan, you fail to point out that Canada, and other OECD countries also "hurt" their citizens by taking away large portions of their income.

In 1932, in the thick of the Great Depression, President Hoover raised marginal tax rates from 25% to 63%. He also raised rates on the lowest earners, in fact almost tripling the tax burdens these people would pay. This step, not intended to "help" the citizens of America, did just that. Following this huge tax increase, the Great Depression was over. In the next years 5 years, real GDP growth would average at 7.2%.

Government spending intended to "help" the people also leveled off. In contrast to the huge increase seen prior to 1932, where non military spending grew from 8.6% to 15.7% of GDP, social spending was now essentially on hold.

This economic period is a great lesson for all governments of today, showing how "hurting" your citizens by taking more of their money, while delivering less in services, creates an environment for massive economic growth.

This same model was used in the 50's and 60's, where tax rates remained above 70%, and government plowed over 10% of GDP into the military. During this time period, real GDP growth averaged over 4.3%, and the middle class was created.

The problem is most politicians don't understand this lesson, they fall into the trap of trying to help people using kindness. This is too bad, since the numbers are there for anyone to look at, and the lessons are clear, trying to help people only ends up hurting them.

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