One incredible chart! Start during the 20's and notice that drastically reduced taxes for the wealthy apparently pumped idle money into the hands of those who enjoy playing with it by creating bubbles and whatnot. Then, catastrophically the bubble burst, and rest of society paid with their jobs. A few years later, tight money policy eventually raised the taxes on the rich, but also prolonged the depression until WWII.. During some of most prosperous years after WWII, the rich are still being taxed at 90% and everything is wonderful. The height of our industrial and economic power is reached. Then comes the Vietnam war, the rich are still paying a portion of their previous share but a little less. Economic troubles begin over the costs of Vietnam. Nixon takes us off the gold standard because we cannot pay our bills giving us free reign to finagle the money supply. Reagan comes into office with promises to cut taxes and reduce government. He cuts taxes for the rich, massively, by borrowing money. Because when it came time to cut government, Reagan decided everything was just fine where it was (David Stockman who created the cut-taxes-with-promises-to-cut-government budget resigns in disgust as borrowing replaces government cuts and he writes a scurrilous book about his experiences. He is called names by the administration and no one pays attention to his message.) Here the myth is born that cutting taxes actually pays for itself. Borrowing money and tax cutting does indeed stimulate the economy, but it is best to do this when the economy needs it. In the last year of the Reagan administration taxes are cut for the rich down to levels unseen since just before and during the first few years of the Great Depression. George HW Bush succeeds Reagan in a promise to never ever "read my lips" raise taxes. Soon the Reagan debt has such a dire effect, he has to backtrack on one of the loudest campaign promises ever made. He has no choice but to raise taxes. All logic says we have to begin paying for our debt. The Gulf War has caused part of this problem but actually ends up a rather cheap war as our allies chip in. Because of the broken "no new taxes" campaign promise, GHW Bush is beaten by Clinton who raises taxes for the rich. Prosperity seems to reign as we actually balance the budget and no new costly wars are begun (Additionally, Clinton continues the deadly policy of deregulating the investment banks in a bid to make the Democratic Party a golden baby for Wall Street. Unfortunately this deregulation, actually started by Reagan, and continued by all succeeding presidents and ingloriously out of control during GW Bush's watch creates the groundwork for the crash.) GW Bush for no apparent economic reason lowers the taxes for the rich and also unfortunately becomes the biggest spending president in history with two mightily expensive wars and general/social spending at high levels. By this time the myth that tax cuts pay for themselves and the general belief of the public that cutting taxes is good for the economy has become well entrenched. The idea of collecting taxes from people who can easily afford this in order to pay for government is so lost that the top one per cent of the people can easily influence people to believe that the historically low rate of taxes for the wealthiest (and the gigantic gains they have made in share of income) can somehow be justified because no one wants bad old taxes. This idea reigns up until the crash. Again, just as in the lead up to the Great Depression, there was plenty of money for the wealthy to play with, leading to catastrophe. People elect a president who promises to raise taxes on the well-to-do. Obama is unable to fulfill his campaign promise of taxing the wealthiest a little more to give tax cuts to the rest and stimulate demand. Finally as the inadequate stimulus money runs thin, the public is convinced that the debt is too high. The most fortunate among us must not pay one penny more (taxes they had paid throughout history.) Austerity measures are put into place, Since not enough stimulus money was injected, we appear to head into another recession or the second dip in the downturn.
Further illustrating the power of under taxing the rich. Notice that U.S Debt falls from a high in WWII (money that stimulated the economy out of the worst depression in it's history.) Debt falls until the magic moment a little after Reagan enters office and just as he initiates tax cuts. At this fortuitous moment, it begins it's ascent. Only once does it dip down, magically just as taxes are raised on the rich by Clinton. Then the line goes unvaryingly up again until the crash where it cascades upwards.
Why don't we need the austerity measures we have just voted into law?
It has to do with what we did after the crash of 1929, i.e., the wrong thing.
"[David] Stockman was quoted as referring to Reagan's tax act as: "I mean, Kemp-Roth [Reagan's 1981 tax cut] was always a Trojan horse to bring down the top rate.... " - Wikipedia article about Reagan's OMB Director link
"(Extending the Bush tax cuts is) rank demagoguery. We should call it for what it is. If these people were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So, to stand before the public and rub raw this anti-tax sentiment, the Republican Party, as much as it pains me to say this, should be ashamed of themselves. " - quote by David Stockman from this same Wikipedia article link
"The Education of David Stockman" link The Atlantic Dec. 1981 Note: this is the famous magazine article that exposed the Reagan tax cut as a "Trojan horse to bring down the top [tax] rate..." as Stockman realized that cutting government was not what was happening. Those were the days of true "public" officials with conscience.