When personal income tax rates were high, the Dow was low

[SoCalDem]

and it also seems that companies were manageable in size, prosperous, and we built & exported a lot more than we imported.. Pensions & unions were everywhere, people still managed to buy houses & cars ..

Look at the graph below, and it's easy to see that the zenith of American power,wealth, & admiration "happened" while we were paying the HIGHEST of taxes...and the almighty Dow was well below 1000...








http://www.nyse.tv/djia-chart-history.htm





A Sampled History of The Dow Jones Industrial Average
From 1900 to The Present,
Including the Most Recent, Week-Ending Close Value
http://www.nyse.tv/dow-jones-industrial-average-history-djia.htm
Date Value @ Close
January 2, 1900 68.13
January 2, 1901 70.44
January 2, 1902 64.32
January 2, 1903 64.60
December 31, 1903 49.11
December 30, 1904 70.05
January 2, 1906 95.00
January 2, 1907 94.25
January 2, 1908 59.61
December 31, 1908 86.15
December 31, 1909 99.05
December 30, 1910 81.41
January 2, 1912 82.36
January 2, 1913 88.42
January 2, 1914 78.59
December 31, 1914 54.58
December 31, 1915 99.15
January 2, 1917 96.15
January 2, 1918 76.68
January 2, 1919 82.60
January 2, 1920 108.76
December 31, 1920 71.95
December 30, 1921 80.80
January 2, 1923 98.77
January 2, 1924 95.65
January 2, 1925 121.25
December 31, 1925 156.66
December 31, 1926 157.20
December 30, 1927 200.70
January 2, 1929 307.01
January 2, 1930 244.20
January 2, 1931 169.84
December 31, 1931 77.90
May 25, 1932 49.10
July 8, 1932 41.22
December 30, 1932 60.26
January 2, 1934 100.36
January 2, 1935 104.51
January 2, 1936 144.13
December 31, 1936 179.90
December 31, 1937 120.85
December 30, 1938 154.36
January 2, 1940 151.43
January 2, 1941 130.57
January 2, 1942 112.77
December 31, 1942 119.40
December 31, 1943 135.89
January 2, 1945 152.58
January 2, 1946 191.66
January 2, 1947 176.39
January 2, 1948 181.04
December 31, 1948 177.30
December 30, 1949 200.52
January 2, 1951 239.92
January 2, 1952 269.86
January 2, 1953 292.14
December 31, 1953 280.90
December 31, 1954 404.39
December 30, 1955 488.40
January 2, 1957 496.03
January 2, 1958 439.27
January 2, 1959 587.59
December 31, 1959 679.36
December 30, 1960 615.89
January 2, 1962 724.71
January 2, 1963 646.79
January 2, 1964 766.08
December 31, 1964 874.13
December 31, 1965 969.26
December 30, 1966 785.69
January 2, 1968 906.84
January 2, 1969 947.73
January 2, 1970 809.20
December 31, 1970 838.92
December 31, 1971 890.20
November 14, 1972 1,003.16
January 2, 1973 1031.68
January 2, 1974 855.32
January 2, 1975 632.04
December 31, 1975 852.41
January 2, 1976 858.71
December 31, 1976 1004.65
December 30, 1977 831.17
December 29, 1978 805.01
January 2, 1979 811.42
December 31, 1979 838.74
January 2, 1980 824.57
December 31, 1980 963.99
January 2, 1981 972.78
December 31, 1981 875.00
December 31, 1982 1046.54
December 30, 1983 1258.64
December 31, 1984 1211.57
January 2, 1985 1198.87
December 31, 1985 1546.67
January 2, 1986 1537.73
December 31, 1986 1895.95
January 2, 1987 1927.31
January 8, 1987 2,002.25
October 19, 1987 1,738.74
December 31, 1987 1938.83
December 30, 1988 2168.57
December 29, 1989 2753.20
January 2, 1990 2810.15
December 31, 1990 2633.66
January 2, 1991 2610.64
April 17, 1991 3,004.46
December 31, 1991 3168.83
January 2, 1992 3172.41
December 31, 1992 3301.11
December 31, 1993 3754.09
December 30, 1994 3834.44
February 23, 1995 4,003.33
November 21, 1995 5,023.55
December 29, 1995 5117.12
January 2, 1996 5177.45
October 14, 1996 6,010.00
December 31, 1996 6448.27
January 2, 1997 6442.49
February 13, 1997 7,022.44
July 16, 1997 8,038.88
December 31, 1997 7908.25
January 2, 1998 7965.04
May 6, 1998 9,033.23
December 31, 1998 9181.43
March 29, 1999 10,006.78
May 3, 1999 11,014.69
December 31, 1999 11497.12
January 14, 2000 11,722.98
December 29, 2000 10787.99
January 2, 2001 10646.15
December 31, 2001 10021.57
January 2, 2002 10073.40
December 31, 2002 8341.63
January 2, 2003 8607.52
March 6, 2003 7,673.99
December 31, 2003 10453.92
January 2, 2004 10409.85
December 31, 2004 10783.01
April 12, 2005 10507.97
December 30, 2005 10,717.50
January 6, 2006 10,959.31
January 11, 2006 11,043.44
January 13, 2006 10,959.87
January 20, 2006 10,667.39
January 27, 2006 10,907.21
February 3, 2006 10,793.62
February 10, 2006 10,919.05
February 17, 2006 11,115.32
February 24, 2006 11,061.85
March 3, 2006 11,021.59
March 10, 2006 11,076.34
March 17, 2006 11,279.65
March 24, 2006 11,279.97
March 31, 2006 11,109.32
April 7, 2006 11,120.04
April 13, 2006 11,137.65
April 21, 2006 11,347.45
April 28, 2006 11,367.14
May 5, 2006 11,577.74
May 12, 2006 11,380.99
May 19, 2006 11,144.06
May 26, 2006 11,278.61
June 2, 2006 11,247.87
June 9, 2006 10,891.92
June 16, 2006 11,014.55
June 23, 2006 10,989.09
June 30, 2006 11,150.22
July 7, 2006 11,090.67
July 14, 2006 10,739.35
July 21, 2006 10,868.38
July 28, 2006 11,219.70
August 4, 2006 11,240.35
August 11, 2006 11,088.03
August 18, 2006 11,381.47
August 25, 2006 11,284.05
September 1, 2006 11,464.15
September 8, 2006 11,392.11
September 15, 2006 11,560.77
September 22, 2006 11,508.10
September 29, 2006 11,679.07
October 6, 2006 11,850.21
October 13, 2006 11,960.51
October 19, 2006 12,011.73
October 20, 2006 12,002.37
October 27, 2006 12,090.26
November 3, 2006 11,986.04
November 10, 2006 12,108.43
November 17, 2006 12,342.56
November 24, 2006 12,280.17
December 1, 2006 12,194.13
December 8, 2006 12,307.49
December 15, 2006 12,445.52
December 22, 2006 12,343.22
December 29, 2006 12,463.15
January 5, 2007 12,398.01
January 12, 2007 12,556.08
January 19, 2007 12,565.53
January 26, 2007 12,487.02
February 2, 2007 12,653.49
February 9, 2007 12,580.83
February 16, 2007 12,767.57
February 23, 2007 12,647.48
March 2, 2007 12,114.10
March 9, 2007 12,276.32
March 16, 2007 12,110.41
March 23, 2007 12,481.01
March 30, 2007 12,354.35
April 5, 2007 12,560.20
April 13, 2007 12,612.13
April 20, 2007 12,961.98
April 27, 2007 13,120.94
May 4, 2007 13,264.62
May 11, 2007 13,326.22
May 18, 2007 13,556.53
May 25, 2007 13,507.28
June 1, 2007 13,668.11
June 8, 2007 13,424.39
June 15, 2007 13,639.48
June 22, 2007 13,360.26
June 29, 2007 13,408.62
July 6, 2007 13,611.68
July 13, 2007 13,907.25
July 20, 2007 13,851.08
July 27, 2007 13,265.47
August 3, 2007 13,181.91
August 10, 2007 13,239.54
August 17, 2007 13,079.08
August 24, 2007 13,378.87
August 31, 2007 13,357.74
September 7, 2007 13,113.38
September 14, 2007 13,442.52
September 21, 2007 13,820.19
September 28, 2007 13,895.63
October 5, 2007 14,066.01
October 9, 2007 14,164.53
October 12, 2007 14,093.08
October 19, 2007 13,522.02
October 26, 2007 13,806.70
November 2, 2007 13,595.10
November 9, 2007 13,042.74
November 16, 2007 13,176.79
November 23, 2007 12,980.88
November 30, 2007 13,371.72
December 7, 2007 13,625.58
December 14, 2007 13,339.85
December 21, 2007 13,450.65
December 28, 2007 13,365.87
December 31, 2007 13,264.82
January 4, 2008 12,800.18
January 11, 2008 12,606.30
January 18, 2008 12,099.30
January 25, 2008 12,207.17
February 1, 2008 12,743.19
February 8, 2008 12,182.13
February 15, 2008 12,348.21
February 22, 2008 12,381.02
February 29, 2008 12,266.39
March 7, 2008 11,893.69
March 14, 2008 11,951.09
March 21, 2008 12,361.32
March 28, 2008 12,216.40
April 4, 2008 12,609.42
April 11, 2008 12,325.42
April 18, 2008 12,849.36
April 25, 2008 12,891.86
May 2, 2008 13,058.20
May 9, 2008 12,745.88
May 16, 2008 12,986.80
May 23, 2008 12,479.63
May 30, 2008 12,638.32
June 6, 2008 12,209.81
June 13, 2008 12,307.35
June 20, 2008 11,842.69
June 27, 2008 11,346.51
July 4, 2008 11,288.54
July 11, 2008 11,100.54
July 18, 2008 11,496.57
July 25, 2008 11,370.69
August 1, 2008 11,326.32
August 8, 2008 11,734.32
August 15, 2008 11,659.90
August 22, 2008 11,628.06
August 29, 2008 11,543.55
September 5, 2008 11,220.96
September 12, 2008 11,421.99
September 19, 2008 11,388.44
September 26, 2008 11,143.13
October 3, 2008 10,325.38
October 10, 2008 8,451.19
October 17, 2008 8,852.22
October 24, 2008 8,378.95
October 31, 2008 9,325.01
November 7, 2008 8,943.81
November 14, 2008 8,497.31
November 21, 2008 8,046.42
November 28, 2008 8,829.04
December 5, 2008 8,635.42
December 12, 2008 8,629.68
December 19, 2008 8,579.11
December 26, 2008 8,515.55
December 31, 2008 8,776.39
January 2, 2009 9,034.69
January 9, 2009 8,599.18
January 16, 2009 8,281.22

[Zynx]

1. I could just as easily say GDP was low. Your argument makes no sense.

Stocks increase as a function of GDP with the variation coming from earnings multiple expansions and contractions.

[SoCalDem]

2. Not really an "argument"..just an observation

:)

[Hannah Bell]

13. it's a true observation. increased $$ = speculative bubbles.

taxing the rich is good for them.

[Zynx]

17. All increases in the stock market are not just speculative bubbles.

In fact, speculative bubbles are not supposed to be very common. We have had three in 21 years, which is unusually bad and the regulatory environment seems to be to blame for that.

Stock prices increased a great deal during the 1950s and 1960s. In fact, they were up a great deal more than they were under Bush. There is no disputing that.

[Hannah Bell]

12. You could say GDP was low, but it wouldn't be true.

[Zynx]

16. On an absolute scale it was. Same thing with the Dow.

It's exactly the same statement.

[JHB]

3. Well, the obvious happened....

Once Reagan got the top marginal rates lowered, it was "invested" in the stock market. Of course, this wasn't real investment (new capital with which the companies could update infrastructure, etc.), it was a new pool of money chasing stocks that had already been issued. (un)Amazingly, this wound up inflaating the price of existing stocks, and thus the DOW was raised.

[whistle]

4. It was gambling money

[SoCalDem]

5. Yep..give rich folks a 45% tax cut, and they start a buying frenzy

buying up real estate & businesses with all that "extra money" they got to keep...... create a bubble so they can lure in the rubes who just lost their pensions & were forced into 401-ks.....whodathunkit was a bad idea..

[Zynx]

10. The Dow increased plenty in the 1950s and 1960s.

This has nothing to do with it.

[JHB]

18. Yes it increased, but nothing like what started in the 80s.

There was no explosion in general real wealth, but there is a non-corresponding increase stock prices, driving up the DOW. Yes, there are other factors (inflation, turnover in DOW membership). It's certainly possible to argue that it wasn't the driving factor, or possibly not even a major factor.

But to claim that a newly-freed pool of money mostly in the hands of the investment class (since we're talking about the marginal rate, we're by definition talking about the top tier of income tax payers) had "nothing to do with it"? Politely put, that strains credulity.

[Zynx]

21. The Dow entered the 1950s at about 200. It left at about 675.

http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=1950

In the 1980s it came in at about 750-800 and left the decade at 2700-2800:
http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=1980

That's pretty similar in terms of advance.

Tax policy has little to do with the success of the stock market. Clinton increased taxes in 1993 and the stock market tripled in the next seven years.

[mmonk]

6. The Dow was lower because there were less companies on it

and investors and the differences in the dollar. There isn't a correlation between income tax rates and the Dow.

[Zynx]

9. There were the same number of companies. They have just appreciated a great deal and there

are different companies.

[mmonk]

11. Yes, as far as the Dow is concerned and S&P 500 because they

are fixed numbers. What I meant is more and more companies now are publicly traded. When one loses its capitalization numbers on the Dow, it is replaced. The confluence of more companies publicly traded means more capital chasing stocks and greater capitalization numbers in the market.

[Zynx]

15. It's actually even easier to explain than that. Companies' values are a reflection

of the expected discounted value of their dividends (or some people use earnings which actually seems to correlate better until recently). Both earnings and dividends rise for companies over time. Hence the values of the companies also increase, holding price multiples constant.

[mmonk]

19. And they can become debt ridden and overvalued as far as the P/E

goes and eventually share prices come down when they lose market share (and capitalization)and the market in times such as now loses a huge amount of value erasing the gains investors once had (but you already know that).

[Zynx]

20. And we have observed that.

Heavily leveraged companies have seen their earnings decline and their solvency in question. As a result, expected future earnings have collapsed (as they should) and so have share prices.

I agree entirely.

[Double T]

7. Time to go back to the highest tax rates for the highest wage earners.

Additionally there should be no cap for Social Security contributions for the highest wage earners. The top wage earners, who many times are wall street investors, need to be taken out to the woodshed for their insatiable greed.

[BeatleBoot]

8. Interesting Observation

I also noticed that every time the rooster crows, the sun rises.

To think that that bird has such power...amazing...


But you've introduced a great concept everyone needs to understand:

Correlation versus Causation.

[Hannah Bell]

14. it's more than correlation.