More fun with marginal tax rates

Here’s Felix Salmon Justin Fox standing in for Felix Salmon, on the economic impact of the socialist Truman government’s evil confiscatory tax policies:

During the Korean War, Congress enacted an excess profits tax meant to keep military contractors from, well, profiteering. In its infinite wisdom, Congress defined excess profits as anything above what a company had been making during the peacetime years 1946-1949.

Boeing was mostly a military contractor in those days (Lockheed and Douglas dominated the passenger-plane business), and had made hardly any money at all from 1946 to 1949. So pretty much any profits it earned during the Korean conflict were by definition excess, and its effective tax rate in 1951 was going to be 82%…

It being 1951, Boeing instead sucked it up and let the tax incentives inadvertently devised by Congress steer it toward a bold and fateful decision. CEO Bill Allen decided, and was able to persuade Boeing’s board, to plow all those profits and more into developing what became the 707, a company-defining and world-changing innovation.

(I’ve deleted some of his sarcastic commentary about how a government enacting a similar measure today would be described, so that mine sounds cleverer.)

4 thoughts on “More fun with marginal tax rates”

  1. Government does X – It has unexpected consequences, (unexpected to those in govenment that is) – It's super effective!, (this part happens very rarely).

    The more general point, that it's very seldom that the government knows what effects its interfering with a complex system will have, stands rather well.

  2. Aviation's the wrong area for you to try to argue for the superiority of the free market, Falco. Every major innovation in commercial airliner design has been the result of government action. The 707, the 747, the area-rule fuselage, the jet engine, fly-by-wire, the SST…
    hardly surprising given the links to military aviation, but even so.

  3. Ummm……… the invention of powered flight…..and….um…

    As you say above, with military avation leading the technology push private companies are bound to be crowded out / exist to some extent as an arm of the government. Space looks interesting though, with NASA moribund private enterprise is moving ever faster on this.

    However, I wasn't as it happens trying to argue for the "superiority of the free market" in aviation in my comment above, (I might well do so, just happened not to be doing so there). My point was that governments, as with pretty much everyone, don't tend to think through all the consequences of their actions. The problem with government blundering like this is that because they have so much power they can do so much more damage.

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