PP users who disagree with Harry Browne

[moda0306]

I'd much rather have all those intrusions you mentioned than 90% tax rates and illegalization of gold.... not to mention things like prohibition and oppressive local laws on vices.

I guess liberty is different to different people.

I have yet to hear, truly, what these "loopholes" truly were that helped people avoid these monsterous tax rates... passive losses and interest were deducted more, but to be wealthy person you actually had to MAKE MONEY, and lots of it.

Further, depreciation was much slower than it is today, though I know this was used, somewhat, in claiming losses... but I don't see how it could be enough.

I need a primer on "taxation of the 20th century" to see how people ever made enough money to become wealthy when tax rates were 90%.

[HB Reader]

I'm curious how many PP users here appreciate Harry Browne's unique investing strategy yet fundamentally disagree with his political philosophy?

I spent the weekend listening to many of his political shows that are linked on the crawlingroad.com site. On some of his positions such as his anti war stance I found myself in agreement. However, on the vast majority of his shows and topics I found him to be an ideologue (like many libertarians that I have listened to and read) that dogmatically argues that the solution to every human problem is that we simply need more freedom and less government. I'm sorry, but  only a delusional fool could truly believe that EVERY single issue in our modern high density, complex society is best handled without any government intervention.

In one of his shows Harry Browne challenged his listeners to find ONE...just ONE government program that was effective.
Maybe I'm delusional, but many government interventions into the free market arise specifically because the free market isn't properly addressing certain issues. While I acknowledge (with nuance) that the government does oftentimes overstep it boundaries, or impede in areas that might be better handled with minor tweaks instead of huge readjustments, to make the claim that NO government programs or institutions are effective (or at least an improvement over the situation that existed before) is asinine and an example of the type of absolutist thinking that should repel any free and rational thinking person.

While I acknowledge the wisdom of the PP as an investing strategy, it bothers me that its creator seems so incapable of moderate nuanced thought.

This was an ongoing internal philosophical debate I had with myself for years after I began reading HB's works in 1974.  While I always considered HB to be one of the most intellectually honest and consistent thinkers I’d come across, I finally decided that I had no obligation to live my life according to his dictates or to see everything his way.  There are many other smart and honest people in the world who view the world -- especially government, economics and religion -- quite differently.

We don’t have to turn him into a deity and pray at his altar to appreciate his philosophical consistency or to benefit from his many insights.  I always thought his most important admonition was that you don't have to change the world.  Unless you’re constantly getting beat up by reality or are seriously unhappy, you probably don’t need to change yourself or your views either.  Life is full of paradoxes. 

[moda0306]

HB Reader,

Well put.  I tend to think a hardened communist could take a ton away from "How I Found Freedom" without changing his political views.  HB's investing and individual philosophies are extremely useful whether or not you agree with his politics.

[MachineGhost]

I have yet to hear, truly, what these "loopholes" truly were that helped people avoid these monsterous tax rates... passive losses and interest were deducted more, but to be wealthy person you actually had to MAKE MONEY, and lots of it.

The most egregarious was you could shelter income offshore by using a entity and/or domestic deductions & credits and not be liable for any income taxes.  150 or so taxpayers in 1967 earning >$200K had zero liability at the 70% top marginal rate.  That was the impetus for implementing what later become known as the dreaded Alternative Minimum Tax signed by...  wait for it...  Nixon.

Many actors and celebrities, such as Ronald Reagan, paid at the 90% top marginal rate.

MG

P.S.  I believe it was Time Magazine that first highlighted the "problem" in an article on offshore tax avoidance which later prompted Congress to act.

[WildAboutHarry]

I have yet to hear, truly, what these "loopholes" truly were that helped people avoid these monsterous tax rates... passive losses and interest were deducted more, but to be wealthy person you actually had to MAKE MONEY, and lots of it.

Well, I wasn't making "real" money then (or now), but as you mentioned interest of most kinds was deductible, you could income average (spread a good year's income over several years to reduce overall tax), passive "losses" were fully deductible, there was the offshore stuff as MachineGhost mentioned, etc.

It is worth distinguishing between the "cost" of government (as represented by tax laws over the years) and the intrusiveness of government on individual lives. 

[moda0306]

WAH,

I agree we need to gauge both, but if we are being taxed at exhorbitant tax rates, it means that our freedom to engage in economic commerce after a certain point is significantly hampered, and that's something that falls back into intrusiveness.... if the government sucks 70% of the profits (aka, happiness) from a given activity, that's extremely intrusive.

[moda0306]

Also, with these loopholes, I'm not wondering what was used by some people to avoid some taxes, but instead whether massive amounts of taxes were able to be avoided.

Interest was deductible, but it is today for the most part if its for business, investment or housing.

Depreciation was SLOW, limiting the ability to use medium-to-long-lived assets to defer taxes.

Money could be put overseas, but that's AFTER it was already earned.  Somehow, lots of people made fortunes during the 50's-70's, and a lot of that money came back around and invested in US treasury bonds and US stocks... LOTS of it.  Passive losses help, but without depreciation it's difficult to develop big losses without actually losing money (something rich people don't like to do).

I'm a tax accountant, so if it's anyone's job to figure this out, it's me, but I've heard nothing that convinces me yet that there was a grand tax-avoidance scheme in the US with a good chunk of the income... I've just heard general comments about passive losses and foreign accounts... I'm not yet convinced.

[MachineGhost]

I'm a tax accountant, so if it's anyone's job to figure this out, it's me, but I've heard nothing that convinces me yet that there was a grand tax-avoidance scheme in the US with a good chunk of the income... I've just heard general comments about passive losses and foreign accounts... I'm not yet convinced.

I don't think 95% of people back then bothered with tax avoidance, otherwise England wouldn't have been so screwed up after WWII from keeping its high taxes.  Yet, it is a real mystery how revenues did not go up in the USA.  Either the disincentive to not work was stronger than we suspect or tax evasion was widespread but not quite an "open secret".  And income tax brackets were not indexed to inflation either until the late 70's.

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MG

[jackely]

However, on the vast majority of his shows and topics I found him to be an ideologue (like many libertarians that I have listened to and read) that dogmatically argues that the solution to every human problem is that we simply need more freedom and less government.

My experience was the opposite of yours. I first read the political stuff and then the investment advice. Knowing how anti-government HB was I was kind of surprised to learn that 50% of the PP consisted of government bonds.

As for your statement above that libertarians "dogmatically argue that the solution to every human problem is that we simply need more freedom and less government", could you possibly be exagerrating the libertarian view to make a point?  Kind of like saying government never does anything right?

[doodle]

Jackh,

As for your statement above that libertarians "dogmatically argue that the solution to every human problem is that we simply need more freedom and less government", could you possibly be exagerrating the libertarian view to make a point?  Kind of like saying government never does anything right?

Maybe it is an exaggeration to paint all libertarians that way, but from the shows that I listened to at this link:

http://crawlingroad.com/finance/harrybrowne/political/

I found Harry Browne's opinions regarding the role of government to be especially lacking in nuance. In fact, he came across as an ideologue. I found this to be quite surprising because his investment philosophy is built upon a great deal of humility in terms of the veracity of one's own convictions. Between his political and investment shows, I felt like I was listening to someone with a split personality.

[WildAboutHarry]

Also, with these loopholes, I'm not wondering what was used by some people to avoid some taxes, but instead whether massive amounts of taxes were able to be avoided.

I spent a few minutes looking at historic data at the Tax Policy Center.  Very interesting (if a bit dry) stuff.

In 1958, with a top rate of 91%, only 0.3% of returns paid a rate of more than 50%.  Almost 3% of returns paid a rate of more than 29%.  In 2009 (last year of data in the chart) about 1.6% of returns paid a rate of more than 29%.

Interestingly, in 1958 about 22% of returns had no tax due.  In 2009, about 25%.

In 1958 the majority of returns (75.5%) were in the 16-28% range (and no returns in the 1-15% range) while in 2009 the majority (54.9%) were in the 1-15% range.

I wanted to keep digging into the data but my eyes started glazing over...

[moda0306]

WAH,

Yeah it's a bit difficult to find both interesting presentation and objectivity at the same time.

Even if there were a lot of tax-avoiding tricks being taken advantage of on a massive scale (it appears that this may be the case, as .3% paying more than 50% on their returns seems a bit small when the top bracket is 90%), the next stage of questions is even more difficult to answer...

With all the misallocation of resources that one would think would occur in a society where people are trying to avoid 90% tax rates, combined with the lack of drive that one would think would also occur once those rates are approached, how on earth was our arguably most prosperous period of the last century the 1950's & 1960's?  Even the mere avoidance of taxes that high, if this is the case, should have resulted in some pretty crazy distortions in the market.  It just doesn't add up, even for someone like me who's less sympathetic to the supply-side mantra.  I think most conversations on this period get heated enough (nobody's going to defend 50%-90% tax rates without pissing off a lot of other people) that no reasonable consensus or discussion has taken place that I've seen.

I really do dislike abusive taxes (maybe not as much as some here, but I truly do), but I think we really have to focus on this period and ask ourselves if tax cuts and tax-simplification are really going to bring us the prosperity that some say they would bring today, when taxes are significantly lower, especially on domestic investment (capital gains/dividends rates being extremely low, and depreciation being extremely generous today vs back then).  

[stone]

moda, I wonder whether a long period of war and financial repression hadn't actually meant that there were very few wealthy people and they really were not wealthy by todays standards. So there was a much much flatter distribution of wealth and that that in itself created the prosperity because profits got distributed across the population and spent on goods and services. The supply-siders say that the POTENTIAL to get very rich is what you need to make people strive to get rich. If you start from a point where everyone is equal but has the potential to get ahead then that is quite different from a situation where a few people already have got massively ahead.

[MachineGhost]

moda, I wonder whether a long period of war and financial repression hadn't actually meant that there were very few wealthy people and they really were not wealthy by todays standards. So there was a much much flatter distribution of wealth and that that in itself created the prosperity because profits got distributed across the population and spent on goods and services. The supply-siders say that the POTENTIAL to get very rich is what you need to make people strive to get rich. If you start from a point where everyone is equal but has the potential to get ahead then that is quite different from a situation where a few people already have got massively ahead.

You got a point.  We were coming off a low base post WWII, so maybe it didn't matter so much what marginal income tax rates were as wealth became renormalized and redistributed, i.e. the "wealth gap".  There was a one time adjustment factor and revenues did indeed jump dramatically.

But if you look at the previous chart more carefully, you won't see any irrefutable proof at all from Kennedy's "supply side" tax cuts, from Reagan's "supply side" tax cuts, from Clinton's "supply side" tax cuts or Bush Jr's half "supply side" tax cuts.  And likely neither was Wilson's "supply side" tax cuts. 

Unless there is some kind of backdoor where people earn money in the black market economy to keep the government's revenues at a relatively fixed pace, I think there is just something finky with Laffer's and Wanniski's theory. 

Has anyone looked to see if "net financial assets" as represented by government debt increased after these tax cut periods?

What were productivity rates like in Scandinavia when taxes used to be as high?

Why was England so stagnant after WWII with its high tax rates?

MG

[moda0306]

MG,

Funny thing about "Net financial assets," is that though people often maybe viewed them as such in the short term (people saw both the bonds they owned and the dollars they owned as wealth, not considering the government liability involved as being truly "on their balance sheets"), they didn't really exist until going off the Bretton Woods system... before that, there was always this fog of REAL liability that existed on the balance-sheet of the federal gov't.

[stone]

MG, on Jesse Cafe Americain, there was a chart a while back that showed the government debt leaping up during those episodes of tax cuts. I really think those tax cuts were 100% about asset bubble blowing so as to boost the exchange rate by luring in money from oil sheiks and dictators etc.

[shoestring]

Browne was a bit of an odd duck, and I say that with all admiration and affection as I tend to walk funny and quack myself.

I consider myself small "l" libertarian in outlook.  I believe there's a need for a lot of necessary government in an information age society, but I also believe we take it way too far.  I believe the ideal government should simply serve as the means by which we consent as individuals to a partial solution to the tragedy of the commons.  I believe the bias should be toward doing too little instead of too much.  I believe in an Edmund Burke sense that every "solution" brings so many unanticipated problems you're better off letting individuals make decisions on their own.

Certainly game theory tells us that this leads to many less than idea situations.  I do not dispute this.  However I believe that this cost is less than the cost of all the disasters which result from letting people who parrot some very particular and often aggressive approach which asserts I am smart so I am right.

Alternatively, I could state that I believe all of us are smarter than just a few of us, and that due to opportunity costs, groups of people outperform their most intelligent and elite members.  I could drone on, but do not feel like it.

So I'm not completely adverse to Browne's personal philosophy.  Really how could anyone be, everything I've ever read from him celebrates the individual.  He really didn't seem to care what you were about so long as he could be what he was about.

That said I don't necessarily agree with everything he was about, but I feel no special need to go out of my way to disagree with his ideas.  Like so many things if you don't think people should X, then don't X yourself and unless X is causing you direct personal harm, don't worry about it because there's so many other, better things to concern yourself with.

All this said, I admit I enjoy reading his opinions when when I disagree with him.

[brick-house]

moda0306 wrote: 

With all the misallocation of resources that one would think would occur in a society where people are trying to avoid 90% tax rates, combined with the lack of drive that one would think would also occur once those rates are approached, how on earth was our arguably most prosperous period of the last century the 1950's & 1960's?

2 reasons not related to taxes

1-  U.S. won the game of risk that was World War I and II.  For some crazy reason, four European empires committed suicide from 1914 - 1945).  England, France, Germany, and Russia lost two generations and left Europe in rubble.  The Japanese and Ottoman Empires also were destroyed.  The U.S. as late entrants to both wars had much smaller loss of life and avoided damage on our shores (save Pearl Harbor).  U.S. became the factory of the world as Europe and Asia were rebuilt.  Once rebuilt we gained competition and lost demand. 

2-  Great demographic situation in 1950s and 1960s.  Huge baby boom with educated, motivated, and productive workforce.