In 1946 the debt was 120% of the GDP, It went straight down to about 32% in 1973. During this period 1946 - 1973 taxes were much higher. Marginal rates were at least 70%; they were 93% under Eisenhower. The economy was better than what we now have. For example, median wages went up 3 times as fast as since 1973. CEO's earned 50 times what their workers earned; it is 500 times today. Staring in 1973, the percent of wealth and income taken by the richest 10%, 1%, and 0.1% has gone up at an ever increasing rate. In fact, can you point to a period in US economic history where high taxes have negatively impacted the economy? Perhaps in the '90's when Clinton raised taxes? Nah.

Since 1900 the two periods with the most economic inequality were the years leading to 1929 and 2008. These happened to coincide with the two periods of lowest taxes on the Rich and the greatest financial speculation. Here's a theory which fits this data.

The Rich hate to pay taxes. You may have heard of the rich guy who will spend $2 to avoid $1 in taxes. So when marginal rates are high, they will leave their money in their companies and use it to pay their workers more, improve their means of production and perhaps hire more. This works out because when there are more workers with more money, there is more demand. When marginal rates are low, the Rich take their profits out of their businesses. Since they can only buy so many houses in Barbados, they use the money to speculate. They buy Argentinean railroad bond (1920's) and CDO's, CDS's and oil futures (2000's). Notice that both these periods of low marginal rates, high inequality and great speculation lead to economic disaster.