 Okay, this is a great day. It's not only a Thursday, it's a great Thursday. Okay, John David Ann, history professor at HPU is joining us. We're going to call this through the lens of history, and today we're going to talk about the history of taxes, which is very important. And let me add that, you know, generation after generation, regrettably, forget history. Right. And we have to remind ourselves, oh, we will repeat the bad parts. So I really appreciate what you do, what you teach, and when you come down here, I really appreciate what you say. It's great to be on here, Jay. I love to come down here and talk about, you know, putting, putting contemporary current issues into historical perspective is so important because we need to understand the past to understand the present. Yeah. So yeah, yeah. Yes. And it's not only, it's not only having to relive it, was George Santiana, right? Right, right, right. But it's, it's, it's, we have to learn from it. We have to do better, not, not the same, not worse, but better. Exactly. That's why I'm here today. Yeah. Okay. So today we're going to talk about the history of taxes. Right, right. Do you mean taxes in general in the world, or do you mean taxes in the United States? Taxes in the United States, of course. And of course, this has to do with the current tax bill that's before the Congress and, and, and so thinking about taxes as something which really affects, you know, the everyday American completely. So this current bill, you know, is going to take the country in a different direction in terms of tax. It's going to reward those with capital, those who can form partnerships and LLCs and C corporations are going to benefit greatly with this tax reform. But those who do not wage earners are going to, in the short run, they'll probably see a benefit. But in the long run, they're going to, it's going to be damaging to them because somebody will have to pay for the, the, the deficit that's being created by the, the fact that this tax cut will leave about a 1.4 trillion, you know, hole in the budget. So. Yeah. But the, Mnuchin says it's going to take care of itself. Yeah. Yeah. Right. Right. Okay. It's going to pay for itself. Right. He says it's, it's the best thing because you have this trickle down effect. Right. So trickle down, this is very interesting. So trickle down theory, right? It's been almost 100% disproven by, by economists for a long time, it's been disproven. Trickle down economics started in the 1920s with very conservative kind of administration and the Coolidge administration where taxes were cut, the assumption and their big businessmen were in charge of the administration. And the tax rates went down to about after World War I, they were at almost 90% for the top bracket. Wow. Went down to 25% for the top bracket in the 1920s. And, and the belief was that if you give the, the, the, the, those who control capital, you give them back a large percentage of their money, then the money will trickle down to those at the bottom of the economy. And what happened in the 1920s is actually just the opposite. And I think we have a slide here about the top 1% in historically. And if we can bring that slide up, that would be great. If, if we don't have it, it's no problem. But so, so by the time the 20s were done and the stock market crash happened up almost 24% of the nation's wealth was held by the top 1% of, of the, of America. Oh, ramping up to 1929. That's correct. So what has led to the conclusion had effect on 1929. So in other words, yes, it did in fact have an effect on 1929. In other words, trickle down economics in the 1920s led to the accumulation of wealth at the top. It did not trickle down. And so you had this problem in the economy with the poor getting poorer and the rich getting richer. So the crash and the depression. And the crash and the depression. So this is dangerous business trickle down economics. It is dangerous business. The crash and the depression were caused in part by this accumulation of wealth at the top because people at the top, very few individuals controlled a lot of the wealth and they would, they were volatile in their investments and in their, in the way they handled their stock. So has anything changed to make the, that formula different today? Well, the, the, the crash, of course, in the Great Depression led to vast increases in taxes on wealthy people. The tax, the top's tax rate went up to 70% in the New Deal. And, and then it went up to 94% in World War II. And so you had this, there it is. There's the slide. So you can see in 1928, it's at about 24%. And then it goes down, down, down until in the 1960s and 70s, it's quite low at 10%. The top 1% controlling 10% of the wealth. So, so what happens after, after the Great Depression and during World War II, then there's this great redistribution of tax money. The higher incomes are taxed more heavily and that wealth is redistributed through the New Deal to those who have less or don't have anything at all through social security and, and, and other programs, other government programs. So Medicare eventually in the 1960s. So you had this redistribution of wealth that led to what you can see in the 1970s led to a very kind of even distribution of wealth in a, in a much lower percentage of wealth controlled by that top 1%. Isn't that the optimal to have a wide, a broad distribution of wealth? So, so yes, I think it is. And let me try to demonstrate that. So, so trickle down economics doesn't work, but redistributive economics does work. Because you can see in that graph that you had a more even distribution of wealth in the time period between, especially between the 1950s and the 1970s. Yeah, yeah. Between 1950 and 1970, about the, the working classes doubled their income. In fact, most earners doubled their income with the, with an economy that grew at about 4% to 6%. Tax rates were moderate for most individuals. The very wealthy paid more, but in fact, they didn't really pay the 70% rate because there were deductions that they could take. So, so in that time period, then you had this economy that was very stable. And you had another way to look at this is the top, the top executives earned about, about, about 400% of their, of their, of their, of the average shally of their employees. But now that has exploded into, you know, it's, it's more than 1,000%. The top executives are opposed to the average money they could never spend. That's correct. Yeah, this is the other thing about trickle down economics is you're giving money to folks who are not going to spend that money because they have so much money already that they're, they're simply not going to spend more. So the problem with trickle down economics, it does not spur growth. If you put money into the hands of those who need to spend the lower classes, you're going to have immediate impacts. They will spend it, sure. Absolutely. And that gives the economy. Exactly. Exactly. So, so it's the present, the, the tax package that's proposed by the Republicans, and it looks like it's going to be passed very soon, is it's wrong in several different ways. It's a, it's a solution in search of a problem for one thing. I mean, you have these executives saying, Hey, we don't need a tax cut. And the truth is, corporate profits are at an all time high in the United States. So you've got that, you've got trickle down theory, which doesn't work. And of course, there's an attack on the Affordable Care Act in this. This would exacerbate the same problem. It attacks the poor. Exactly. Exactly. So in the short run, the lower classes might see a little bump up, right? But in the long run, after eight years, the tax cuts for the, for the middle class and the lower classes actually expires. It's a lie then. It's a lie when they say the tax cut. The tax cut for the, the corporations is permanent. Oh, how could, how could they do that? It's such a fantastic lie. Yeah. So it's, yeah, it's, it's, it's, I don't think they're lying. I think they're, they're, they're, they're moving off of an ideological assumption that trickle down economics, that capital, that putting the capital in the hands of those who already have a lot of capital will actually benefit you. It's a flawed ideological assumption. Having the middle class lose the tax, tax reduction in a period of time and having the rich guys and the corporations keep it permanently. Oh, that's just really offensive. So the question, you know, I think that the question to talk about is how did, how did this happen? How do we get into this place where people believe, I mean, I doubt it's sincere with a lot of people, but people say they believe, you know, that it's better to have the wealthy, wealthier. What is that from? What does that come from? So, so there are a couple of things there. That, that idea is a very old idea in American society. And that's this idea that anybody can become a millionaire. It's, it, it comes from a laudable kind of goal that Americans believe that upward mobility is the possibility of every citizen. So this is really, it's a Jeffersonian, it's Lincoln-esque. Lincoln believed in upward mobility. He talked a lot about upward mobility in, in his speeches. And the Republican party of the, of the Civil War era was a party devoted to upward mobility. They passed the Homestead Act in to give land away in the West to homesteaders to, to, yeah, to propel these Westerners into wealth. So this idea of upward mobility is a good idea. It's just that it has limits. Okay. It, it has limits. And it's been kind of corrupted into this idea that those who have tremendous wealth should be rewarded further. So it's been kind of distorted in the, in the contemporary sense. It sounds, it sounds like a robber baron kind of thing, because, you know, in the days of the robber barons, the robber barons controlled the government. And they, and they acted for their own interests for their own, and that's what's happening now. Well, unfortunately, there, there's some truth to that, that we've moved, we've moved away from caps on, on campaign donations. And, and so, yeah, wealthy people have a lot more influence in our elections now than they did previously. And it does in some ways match the late 19th century, the Gilded Age and the robber barons. Yes, there's, there are definitely some similarities there. That today, corporations don't have quite the control over Congress that they did in the 1890s, where the large corporations actually controlled the senators from the states where they had their headquarters. So it's not quite that bad. But the thing, the other thing about the situation that we're in is that I think it results from the workings, the basic workings of, of a capitalist economy. And in a capitalist economy, over time, if the government does nothing to prevent it, those who have capital will accrete capital. They will get more capital in a capitalist economy. So those who control land and control other assets like this are going to see more appreciation than those who are simply wage earners. Wage earners simply do not get the increases in capital the way that those who control corporations. Richard. Richard. Yeah, yeah. And so, so what the government did in, after the Great Depression or during the Great Depression in the 1930s in the New Deal is say, wait a minute, we're going to change the way that works in our economy. We're going to put a limitation on this. And so we're going to redistribute the results of capitalism. And it worked. It worked. I mean, you look at the American economy from the end of World War II until Ronald Reagan, it's the most stable time period in the history of the American economy. And the Gallitarian. And yes, and it's the most kind of balanced in terms of. Common man could actually survive and get to the middle class. And actually prosper. We had millions of Americans moving into the middle class, buying homes for the first time, moving into suburbs. Yeah, it was a tremendously prosperous time. But if we go forward, and I'm not sure the Republicans understand this part, I think they understand that they want to, of their philosophy of limiting government more, they want to get rid of as much taxation as possible. They don't want to pay for their brothers. They want to pay for social safety. That's right. That's right. That's right. And you could say that this, the social safety net is next with, with this particular Congress, because there's going to be a hole in the budget. And how are they going to fix that hole, where they're going to try to cut social security and Medicare and Medicaid? Let's take a break, John. We come back. We're going to talk about that. We're going to talk about inflation too. We're going to talk about a hole in the budget. And what the historical background is for those kinds of things. That's John David and history professor at HPU. We're talking about through the lens of history here on ThinkTech. And we're talking today about the history of taxes with John. We'll be right back for more. Aloha Kakao. I am Andrea. I am from Italy. And I've been studying and working here in Hawaii for more than three years for my PhD. Hawaii is home to a truly fantastic community of middle and high school students. And did you know some of them are currently out there right now using their free time to invent new quantum computers? And did you know some of them are exploring cybersecurity and the new frontiers of robotics? I am just always amazed as I talk to them at science fairs. Oh, but there's more. Did you know that these students are coming here on ThinkTech Hawaii to share their story with us? Come and join the new young talents making way show and discover how these students are shaping our future. Starting on February the 6th every Tuesday at 11 a.m. Only here at ThinkTech Hawaii. Mahalo. Strong man to come in. Oh, yeah. We're talking during the break about what happens if Republicans keep on doing this. And one of the interesting issues is that the estate tax is going away in this tax reform. I can't say without quotes, tax reform is not really reform at all. It's a grab, a huge grab in immoral, unjust, unethical grab on the part of one party driven by all the wrong motivations. Anyway, you have no estate tax. You have lower income tax for relatively speaking for the rich. You have the lower corporate tax owned by the rich, controlled by the rich. And of course, we have Citizens United, which makes the rich more powerful in electing elected officials. So over time, this is really interesting. Over time, it might work for them in the short term, but if you have a large population that's getting poorer while you're getting richer, you have the makings of the end of democracy. Yeah, you do. Yeah, it's a disturbing trend, although we reversed it in, are we on? Yeah, go ahead. Yeah, so back on. So if you can reverse this, though, I mean, this was the same situation in 1929 where you had this tremendous wealth in the hands of few and many more who were poorer, the New Deal reversed that and it was a people's revolution. So you can have the same thing here. The thing about the Republicans is I don't think they understand that they have laid the seeds for a potential social and even political revolution with these ideas. Because if, again, as we were talking about, if you have just a few extremely wealthy people who are all also have become politically powerful, then it's a recipe for great unrest in the lower classes. It's also a recipe for a strongman coming in, claiming in the name of the people to take a great deal of power and in perhaps doing it. So I don't think our democracy is threatened yet, but it could be. But it could be. The direction is all a threat. I remember the whole thing about Ben Franklin and the women's waiting outside Liberty Hall. What kind of governor are we going to have, Dr. Franklin? And he says, a republic, madam, if you can keep it. Yes. And it's fragile. People think it's got such depth that it's never, it's fragile. And I think this kind of thing, and you talk about a strongman, a strongman is not democracy. It's something else. Right. I guess I would, we could debate about whether it's fragile. I think actually, looking historically at the history of our republic and our democracy, okay, we're still a flawed democracy. But our republican country has been quite durable. And we've gone through many crises and have survived them. Not good. Yeah, I mean, it's concerning, but there is a piece of good news in the midst of all of this. And that's that the tax plan has a popularity rating of about 33%. So the majority of Americans actually understand what's going on. I think in a way the having, Trump having won and the republicans having gotten controlled and pushing forward their agenda. I think it's really awoken the American people to the consequences of these ideas. And so I have a hard time seeing that this tax plan, even if it's implemented, will be able to stay in place over a long period of time. Well, there's an election every November or two. And there's one coming up and we've seen it's sort of a forerunner of that in Alabama. So maybe there'll be a whole, and we'll have a, what did you call it, sort of a legislative, social revolution of sorts, as we did in the New Deal. That's right. We could push it in the other direction. And yeah, and we could see maybe greater healthcare or even universal healthcare come out of this. It's really hard to know, but I think it's not a moment of despair. Actually, I think I'm seeing signs that, you know, the other thing about this is that the republicans are quite divided. And let's see if they can actually pass this tax package. But history shows us that capital, if left untouched by governments, will accrete, will accumulate to those who have a lot of capital. Especially without an estate tax. If I make Ukubaks, you know, without, with lower tax rates for me and my corporation, and then I'm able to pass that on to next generation without any tax burden at all, then I'm creating a kind of royalty, am I not? Yeah. Yeah, no, it's, I think hopefully they'll leave at least some level of the real, the estate tax, the inheritance tax in this combined proposal. I don't know, honestly, if they've left it in or not. I know they changed it. They raised it. We should talk about fiscal for a minute. And so there's two elements of the fiscal. Maybe they're both connected. One is, you know, you have $1.5 trillion that you're not collecting. Theoretically, you're leaving it for spending. And a lot of economists and political scientists would say, this leads directly to inflation. What's the history of that? What's the possibility? Right. So inflation is, it's a, this is a much trickier issue in history. When you look at the late 20s in terms of inflation, for the United States, it's moderate. It's in the four and a half to five percent, five percent range. But so, so that kind of spending at the top did not right away create inflation, but there are other things going, there are other things going on. The rest of the world is, is beginning to go into the great depression earlier than the United States. Now? Yes. Well, right. So by in the mid 1920s, the British economy is suffering greatly. They're in a deep recession throughout much of the 1920s, over 10% unemployment. They're, they're pursuing something else in there. They're, they're trying to get themselves back on the gold standard. After the war. Yes. With a very, and they've set their interest rates very high and it just, it just stamps out any economic activity. So in the United States, part of the reason why the interest rate stays low is that capital goes abroad, because the British have high interest rates. Then the major capitalists who are benefiting from low taxes and an economy that's robust and a stock market that's going, stock market that's going up and up, they send their money to Great Britain, which actually has a bad impact on the United States in 1928 and 29 is it takes capital that would have been available for investment in the stock market. It begins to pull that out. And, and then the stock, this is the amazing part. Okay. The stock market begins to crash in 1929. And what does the government do? They raise the Federal Reserve raises interest rates up to 6%. And it pushes the economy into a deep depression. It's 180 wrong. It's totally wrong at that point. So, but it, it's possible that, so the 1920s comparison doesn't necessarily pan out. It's, it's possible that this could create inflation. But right now inflation is really under control because we've had a slow growth economy and the Federal Reserve has been very careful about riding on top of inflation by raising interest rates. And then apparently doing that. Yeah. And they have done it several times. They've done it three times this year and they're planning on doing it some more next year. So they're, they're riding inflation. I think that's, that's a good thing. But if we get a big, you know, I mean, it's possible that you could have much increased inflation in which case you'll end up with a recession or maybe even a depression. The other fiscal point, the other fiscal point you mentioned earlier is if you, if you don't collect taxes, if you reduce taxes, you don't have so many collections. And it's the same number, $1.5 trillion is not being collected. So, A, I mean, how are you going to fund Trump's $54 billion increase in military, which he's very ardent about? How are you going to do his infrastructure that he talked about, and including the Beschlug and a wall there on the Mexican and American funds? So their idea with infrastructure is to farm it out to private companies. How are they going to make a buck on that? I don't think the Republican Party is actually going to support infrastructure investments. I don't think they're going to do that. So that campaign promise is going to go nowhere. I think so, yeah. I think that's. And then you mentioned the social safety net, which costs plenty money. And including, of course, health care from the government and all kinds of other social safety net things that we need to, you know, keep our population alive and reasonably functioning. That's probably going to get cut. I absolutely agree with you. Yeah, I mean, it. What kind of effect do we have? Well, I don't see, this is where I don't think politically the Republicans will be able to do that. And if they try it, they're going to get pushed out of office very quickly. Yeah. I mean, we have elections every two years. Yeah. And the Congress. How goodness for that. Yeah, so, yeah. So, but back to inflation, there's one other thing that I didn't mention. And that's if you put a hole in the, in the, in the budget and in the deficit, you're going to have to borrow much more money to fill that hole. And when you borrow money, you're going to have to pay higher interest rates on the bonds and that produces inflation. Yeah. So that's the other part. I mean, we could, we could see an inflationary spiral. Housing is already probably at a bubble stage in the United States. In prices. If housing prices are nearing a bubble stage. So it could be that this, pardon me, that this tax bill, if it becomes law, could be the thing that pushes us into a recession or even a depression. Let's hope not. But yeah, I think that's, that's a distinct possibility. Well, you know, when the government lies on a regular basis and deceives us on a regular basis, it's also lying to itself. That's right. And it's not operating on, on facts. So that's right. It could be a huge mistake, such as raising the interest rate in 1929. It could, it could. And it couldn't, what he's doing now, what they're doing now could push us into a recession or worse. Yes. So what's the good news, John? Well, I, I do think the, the good news here is political. That most Americans don't support this tax package. And I think the, the Democrats, I assume, will run on the basis of this in the midterm elections. And I think it's quite possible that the Republicans will get crushed in the midterm elections. And then the Democrats are going to have to figure out how they can work with the Trump administration. Or if not, they're going to have to figure out how to kind of make this into, parlay this into a situation where they can reverse some of this stuff. I mean, that's hard to predict. Talked about the Robber Barons and the big trusts of the early 20th century, the 19th century. And, and luckily, I mean, happily, thank God, you know, we were able to beat that back and have a democratic society and, and the changes that had to be made for May. But the problem is that, that every change, and I know this from, what's his name, Balkan, Jack Balkan teaches constitutional law at Yale. Is he, you know, even in a bad administration, you make a mistake, you go the wrong way. It's not like you can wind it back like a yo-yo. For example, if the, if the Republicans were able to pass this bill in the next few days, it's not like a new election will allow a new group of legislators to immediately, you know, wind it back like a yo-yo. Right, right. You got to really work at that, take a hundred years or, well, a long time anyway. I don't, well, it depends on what happens with the economy. If the economy does overheat and you get a recession, then I think it happens quite quickly. You get a turnover in Congress and then in 2020, you'll get a turnover in the presidency. And then you can, then you can, like I say, this, this presents opportunities as well, if, if, if you can turn it in that direction, like what happened in the Great Depression and in the New Deal. So it's, it's, it's hard to tell. I mean, we've had many, many tax reforms in the 20th century. The top rate has gone from 7% to 94% to 25% to 99% during World War II to 70% after World War II to 39% during the, the Reagan era. There's no rhyme or reason. 35%. It's political. Now it's 39 and a half. It'll go down to 37 with this package. So there's been a lot of change in, in what it suggests is that taxes are incredibly political. Yeah. That you get it. So I think change is quite possible. There's, there's, I mean, the thing is corporate executives are going on TV and saying, you know, we don't need this. We don't really need this at all. So I think there's a good argument to me made that none of this will be permanent in the long run. One thing is clear, you know, if you, if you thought that the study of history was something dusty for the back shelf, you're wrong. That's totally. And in fact, it's moving. Isn't it true it's moving faster now? I mean, you got to read the paper every day. You got to see what's going on. History is happening around us. Absolutely. And, you know, with the economy as well, as well as with American society. Yeah. It's very important to understand. Yeah. Very important that you come on the show and talk about it. Thank you, John. John David and HPU history professor here on History Lands. Yes. Thank you.